Board of Directors' Report on the Corporation's State of Affairs

Transcription

1 Board of Directors' Report on the Corporation's State of Affairs Brack Capital Properties NV (hereinafter: "the Company") hereby submits the Board of Directors' report for a period of twelve months ending on December 31, 2016 (hereinafter: "the Reported Period" or "the Report Period. The financial statements attached in Chapter C of this periodic report are presented according to International Standards the IFRS. All data in this report refer to the consolidated financial statements unless otherwise stated. In this report: "The report date or "the date of the report" December 31, "Report signing date" or "the date of signing the report" March 23, "The reported quarter" the year of Preamble Below are the Company's principal results for year ended December 31, Profitability in 2016, the Company's net income attributed to the Company's shareholders amounted to approximately EUR 76.3 million compared to income of approximately EUR 63.4 million in The following is the contribution of income producing real estate and residential development activities to the Company's results: - Income producing real estate in 2016, the FFO amounted to approximately EUR 29.3 million compared to approximately EUR 24.3 million in In the fourth quarter of 2016, the FFO amounted to approximately EUR 8 million grossing up an annual rate of EUR 32.1 million. - Residential development activity- in 2016, the contribution to profit of Grafental project amounted to approximately EUR 15.4 million (consolidated) from the delivery of the remaining 55 flats out of 118 flats from Stage B1 and delivery of 93 flats out of the 107 flats from Stage B3. 1

2 2. Operating segments key operational data 1. a. Residential development Grafental project 2 Stage Income producing real estate 4 Zoning Number of flats Expected revenues (EUR in millions) Expected income (EUR in millions) Entrepreneurial profit (in percentage) Sales (in percentage) Revenue recognition until now B % 99.9% 99.9% B % 99.8% 83% C % 89% 0% Total % 96% 60% Area (square meters) Actual Return of rental fees 5 ERV Return 6 Actual NOI return 5 NOI return according to ERV 7 Occupancy rate Residential % 8.5 % 5.7 % 7.6 % 96% Commercial % 7. 2% 6. 1% 6. 7% 95% Total % 7.9 % 5.9% 7. 2% 96% - Residential: in the fourth quarter of 2016, rental fees increased by 5.4 % from identical assets and 9.5% in rental fees per square meter in new rentals compared to the corresponding quarter of The rental fees in new rentals in the residential market are higher by 28% compared to the actual rental fees. - Commercial: in the fourth quarter of 2016, rental fees have increased by 3.4 % from identical assets compared to the corresponding quarter in 2015 mainly from the betterment of assets. In this regard it is indicated that the Company promotes projects for the betterment of commercial assets out of the existing portfolio of the Company at an estimated investment scope of approximately EUR 50 million 8 which will take several years and will produce an annual yield of 9% on the investment. In addition the Company examines and promotes rezoning procedures in part of those assets 9 and other assets as well, which in case they will mature, the expected investment volume will be more material. 1 As of the signing date of the report 2 Data according to 100%, the effective corporation's share in the project is 83%; sales include reservations. 4 Assets consolidated in the Company's financial statements; including transactions after the balance sheet date. 5 Data of February 2017 in annual terms divided by the carrying values. 6 ERV estimated rental value the expected annual return provided that all of the assets are leased in full occupancy in return for the rental fees prevailing in the market. 7 Actual NOI plus the difference between actual rental fees and the ERV divided by the carrying values 8 of which EUR 30 million in four assets under the Matrix Portfolio 9 of which 2 assets in large cities in Bavaria 2

3 3. Balance sheet structure and financial solvency a. Equity and NAV: The equity attributed to the Company's shareholders amounted to approximately EUR million and EUR million as of the report date and the report signing date 10, respectively. The NAV 11 amounted to EUR million and EUR million as of the report date and the report signing date 10, respectively. b. Debt ratios: the LTV ratio 12 is 51.3% and 47.52% as of the report date and the report signing date 10, respectively. The EBITDA ratio to interest expenses (only from the income producing portfolio, excluding operating income from entrepreneurship activity) is 3.25 in the fourth quarter of c. Liquidity: cash balances and liquid balances amounted to approximately EUR 89 million and EUR 136 million as of the report date and the report signing date 10, respectively. Concise description of the Corporation and its business environment Areas of activity The Company, its subsidiaries and associates companies (hereinafter, collectively: "the Group") have been operating in the field of real-estate in Germany, in four primary activity sectors: residential income producing real estate, commercial income producing real estate, entrepreneurship residential real estate in Düsseldorf and betterment of land in Dusseldorf. Below are the details on the major developments in said sectors (as occurred) in the reported period and until the signing date of the report: Residential income-producing real-estate as of the report signing date, the Group owns 10, apartments, with a total leasing area of approximately 609,000 m 2. Commercial income-producing real-estate as of the report date, the Group owns 28 commercial income-producing properties 14 in the commercial segment (commerce and offices) with an overall leasing area of approximately 334,000 m 2. Entrepreneurship Residential Real estate - for details regarding the marketing, sales and performance of stages B1 and B3 (225 units) and Stage C (109 units) of the Grafental project in Dusseldorf as well as the Company's residential project in Aachen, see "Material events and others during the reported period". Betterment of land in Dusseldorf - the Company owns 2 land complexes in Dusseldorf, Germany, undergoing advanced procedures for changing the zoning from offices to residential. For details regarding the Company's progress in the zoning changes of the lands in Dusseldorf, see the section Material events and others during the reported period". 10 For the purpose of calculation as of the report signing date, the consideration of the IPO of the shares and warrants (Series 1) net is taken into account that was completed in January For additional information see material events during the reported period. 11 EPRA NAV for details regarding the index and the calculation manner see section 5 of part A. 12 Net debt to total real estate assets 13 Excluding 519 apartments for which the Company has entered into purchase agreements until now in 2017 in Hannover Essen and Leipzig. For additional information see section "Events after the balance sheet date". 14 In addition, the Company has 1 assets held by an associate spanning over an area of 7,000 m 2 in the city of Chemnitz. 3

4 Property financing The Company consistently works for maximizing the return-risk profile for its shareholders by means, inter alia, of optimization of the capital/debt structure, both on property level and on corporation level. To that end the Company uses the following sources: bank loans and bonds raising in Israel etc. Below are the details on updates in the aforesaid financing methods (as occurred) in the reported period and until the signing date of the report: Bank loans the Company has bank loans amounting to EUR 591,321 thousand. As of the report date, the average rate of interest of these loans is approximately 1.77%. The average duration of the loans is about 4.1 years. Bonds the Company has three series of bonds (non convertible to shares) rated by S&P Maalot Ltd. (Maalot) with AA- rating as of the signing date of the report: Series A at a scope of approximately NIS 228,640 thousand par value with an interest (linked) of approximately 4.8% per year with an average duration of approximately 1.8 years, Series B at a scope of approximately NIS 210,000 thousand par value with an interest (linked) of approximately 3.29% per year with an average duration of approximately 4.8 years and Series C at a scope of NIS 156,911 thousand par value with an interest (linked) of approximately 3.3% per year with an average duration of approximately 6.9 years. Activity environment For details regarding the Company's activity environment in Germany see section 1.6 in Chapter A, "Description of the corporation's state of affairs" which is attached to this periodic report. 4

5 Material and other Events in the Report Period Purchase of an additional residential portfolio in Kiel, northern Germany - on December 18, 2015, the Company (through sub- subsidiaries) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders (only in this sub section: the seller) under which the seller shall sell the Company 296 residential units in northern Germany (only in this sub section: the acquired assets) for a total consideration of EUR 20.4 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a subsidiary) entered into an agreement with a German bank to obtain a loan of EUR 14 million under non- recourse terms bearing an annual fixed interest rate of 1.24% which its final repayment date is 5 years from the date of extending the loan. On March 1, 2016, said transaction was completed 15. Capital distribution to shareholders on January 11, 2016, the Company' general meeting of shareholders approved to carry out a capital distribution to its shareholders in the total amount of EUR 6,041 thousand (out of the premium reserve on the Company's shares, of which NIS 38 thousand for treasury shares which are held by the Company).Said capital distribution was carried out on April 13, Change in the ESOP3 conditions on January 27, 2016 and February 4, 2016, the Company's remuneration committee and the Board of Directors (respectively) approved a modification to the plans from 2013 for the allocation of options to employees (ESOP 3) (the existing plans) with respect to the acceleration of the vesting dates as follows: the Company's competent organs may approve a mechanism for accelerating the entitlement of all or any of the offerees with respect to all or any of the warrants that were not yet vested in case the employee is dismissed (other than in circumstances where he is not entitled to severance pay as specified in the Severance Pay Law 1963) and/or upon transferring the control of the Company. The modification of the plans and the approval of accelerating the entitlement dates for exercising non marketable ESOP 3 options issued to joint CEOs and the VP of entrepreneurship and development of the Company received the approval of the Company's general meeting of shareholders which was called for March 21, Purchase of rights from non-controlling interests a. In January 2016, the Company addressed investors holding the Leipzig joint venture 18 and the Leipzig Am Zoo joint venture 19 offering to sell the Company the entire rights in these joint ventures, in return for EUR 24.7 million (for 49% of the rights in the joint ventures). Investors holding a total 17% of the joint ventures accepted the Company's proposal and in the second quarter of 2016, shortly after the completion of refinancing the Leipzig portfolio (as described below) the transaction was completed and said rights were acquired for EUR 8.65 million. It should be noted that after the completion of the above transactions the Company holds 68% of the rights in these joint ventures and the remaining 32% of the rights are held by investors. 15 For additional information see the immediate reports of the Company from December 20, 2015 and February 21, 2016 (references numbers: and , respectively) which are brought in this report by way of reference. 16 For additional information see the Company's immediate reports dated November 25, 2015 (2 reports) and January 11, 2016, March 23, 2016, April 5, 2016 and April 7, 2016 (references , , , , and , respectively) which are brought in this report by way of reference. 17 For additional information see the Company's immediate reports dated February 29, 2016 and March 27, 2016 (reference and ) which are brought in this report by way of reference. 18 a joint venture that includes 2,790 flats in Leipzig (Germany) 19 a joint venture that includes 436 flats in Leipzig (Germany) 5

6 b. During the fourth quarter of 2016, the company has addressed investors holding the Rostock joint venture 20 offering to sell the Company their entire rights in the joint venture, in return for EUR 16.3 million (for 43.31% of the rights in the joint venture). Investors holding a total 17% of the joint venture accepted the Company's proposal and in the fourth quarter of 2016, the transaction was completed and said rights were acquired for EUR 6.42 million. It should be noted that after the completion of said transactions, the Company holds 73.71% of the rights in the joint venture and the remaining 26.29% of the rights is held by investors. It should be noted that the transaction price derives from the fair value of the assets held by the joint ventures, according to valuations of independent outside appraisers and the Promote calculation to which the Company is entitled. Refinance of Leipzig on February 1, 2016, the Company entered into a refinance agreement for a major portion of the Leipzig portfolio (about 2,790 residential units) for 7 years. The new loan of EUR 57.5 million (similar to the unsettled principal balance of the loan from 2011) which repayment date is April 30, 2023 bears a fixed interest for the first 5 years of 1.12% per annum. The loan will be paid in equal quarterly installments, principal and interest (Spitzer) effective from June 30, 2016 in the amount of NIS 449 thousand per quarter and the balance will be paid at the end of the loan term 21. Under the refinance, a credit facility of EUR 17.4 million was approved for the Company until 2023 where if and when used it will bear a variable Euribor interest for 3 months plus a margin of 1% per annum. Sale of an asset in Dusseldorf - on March 4, 2016, the Company (through a sub- subsidiary) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders for the sale of rights in an office building which is not occupied from 2013 which undergoes betterment procedures in a total area of 3,985 m 2 located in Dusseldorf. The consideration was set at EUR 5,050 thousand slightly above the value in the Company's books. It is noted that the asset is not pledged and the consideration was received in full by the Company upon the transaction completion date at the end of July Increasing the credit rating for the Company by Maalot on March 15, 2016, Standard & Poor's Maalot (Maalot) determined for the Company a rating of ilaa- (stable outlook) and for the Company's series A, B and C bonds determined the rating of ilaa- 22. Purchase of additional assets in Kiel, northern Germany on March 16, 2016, the Company (through sub-subsidiaries) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders (only in this sub section: the seller) under which the seller shall sell the Company 287 residential units in Kiel, northern Germany (only in this sub section: the acquired assets) for a total consideration of EUR 36 million (including related transaction costs). 20 Income producing asset with a leasable area of 64 thousand square meters in Rostock, northern Germany. 21 The interest rate for the sixth and seventh year was not yet determined. According to the agreement with the bank the interest rate will be determined based on the Euribor rate plus 1% or fixed interest according to market conditions on that date. 22 For additional information see the rating activity report of Maalot which was attached to the Company's immediate report dated March 15, 2016 (reference number ) which is brought in this report by way of reference. 6

7 For the purpose of financing the purchase, the Company (through a sub-subsidiary) entered into an agreement with a German bank to obtain a loan of EUR 25 million under non-recourse terms which its final repayment date is 5 years from the date of extending the loan bearing a fixed annual interest rate of 1.65%. The transaction was completed on June 1, Purchase of an asset in Hannover, Germany on March 18, 2016, the Company (through sub subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the seller will sell the Company residential, commercial and office building in Hannover, Germany (in this sub section only: the acquired asset) for a total of EUR 7.8 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a sub-subsidiary) entered into an agreement with a German bank to obtain a loan in the amount of EUR 5.6 million under non-recourse terms which its final repayment date is December 31, 2019 bearing a fixed annual interest rate of 1.49%. The transaction was completed on July 1, Purchase of an asset in Dortmund, Germany - on March 23, 2016, the Company (through a subsubsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the seller will sell the Company 32 residential units in Dortmund, Germany (in this sub section only: the acquired asset) for a total of EUR million (excluding related transaction costs). For the purpose of financing the purchase, the Company entered into an agreement with a German bank to obtain a loan in the amount of EUR 1.75 million under non-recourse terms which its final repayment date is 5 years from the date of extending the loan bearing a variable interest based on the Euribor rate for 3 months plus a margin of 1.3% per annum. The transaction was completed on June 1, Expansion of Series C bonds - on April 4, 2016, the Company successfully completed the issuance to the public of 60,058,000 bonds (Series C) of NIS 1 par value each listed for trade by way of expanding the existing series of bonds (Series C) according to the shelf offering report published on April 3, 2016 which is based on a shelf prospectus dated May 28, The total gross consideration amounted to NIS 61,319 thousand 25. Purchase of an asset in the Dortmund area, Germany - on May 13, 2016, the Company (through sub- subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (the seller) under which the seller will sell the Company a commercial asset in the Dortmund area, Germany for a total of EUR 9.1 million (including related transaction costs). For the purpose of financing the purchase, the Company entered into an agreement (through a sub-subsidiary) with a German bank to obtain a loan in the amount of EUR 6.35 million under non-recourse terms which its final repayment date is April 30, 2021 bearing a fixed annual interest rate of 1.55%. The transaction was completed on July 1, The purchased asset is leased to Toom (a leading DYI chain in Germany) for 14 years generating annual rental of EUR 667 thousand. 23 For additional information, see the Company's immediate reports dated March 17, 2016 and June 1, 2016 (reference and ) which are brought in this report by way of reference. 24 For additional information, see the Company's immediate reports dated March 22, 2016 and July 3, 2016 (reference and ) which are brought in this report by way of reference. 25 For additional information see the Company's immediate reports dated April 3, 2016 and April 5, 2016 (reference number and ) which are brought in this report by way of reference 26 For additional information see the Company's immediate reports dated May 15, 2016 and July 3, 2016 (reference number and ) which are brought in this report by way of reference. 7

8 Sale of an asset in the Bad Kreuznach, Germany - on May 13, 2016, the Company (through a subsubsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of rights in a fully occupied building at a total area of 3,602 sq.m located in the city of Bad Kreuznach producing annual rental fees of EUR 360 thousand. The consideration was set at EUR 5.1 million slightly above the value of the asset in the Company's books. The consideration was fully received by the Company on the transaction completion date on August 1, 2016 which was used for a partial repayment of the portfolio loan from the bank. Purchase of residential portfolio in Dortmund, Germany - on July 8, 2016, the Company (through sub- subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (only in this sub section: the seller) under which the seller will sell the Company 173 residential units in Dortmund, Germany (only in this sub section: the acquired assets) for a total of EUR 8.2 million (including related transaction costs). For the purpose of financing the purchase, the Company negotiates (through a sub-subsidiary) with a German bank to obtain a loan in the amount of EUR 5.6 million under non-recourse terms which its final repayment date is September 30, 2021 bearing variable interest at Euribor for 3 months in addition to a margin of 1.3% per annum. The transaction was completed on October 1, Sale of an asset in Emerich, Germany at the end of July 2016, the Company (through a subsubsidiary) consummated a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of rights in a residential building spanning over an area of 1,300 m 2 which is located in the city of Emerich producing annual rental fees of EUR 83 thousand. The transaction's consideration amounted to EUR 935 thousand where EUR 650 thousand of the consideration was used to pay a loan from a bank that financed the purchase of the asset. Sale of 4 assets in eastern Germany - on September 23, 2016, the Company (through a subsubsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of its full holdings in 4 asset companies for EUR 66.5 million (plus working capital adjustments). The sold companies fully hold the ownership rights in 4 commercial income generating assets in eastern Germany in cities that are not in the Company's core operations which are leased at occupancy rate of 99%, generating annual rental revenues of EUR 4.5 million. During 2015 and in the period of 11 months ended November 30, 2016 the contribution of the sold assets to the consolidated operating profit amounted to EUR 4 million, and EUR 3.7 million, respectively. The sold assets were purchased as part of Matrix portfolio during in return to EUR 37 million, the fair value of the sold assets according to the Company's financial statement as the transaction completion date amounted to EUR 61.5 million. As a result of the transaction, and net of transaction costs, the Company recognized a profit (consolidated) of EUR 1.9 million. The remaining 9 assets of Matrix portfolio are in the core operations of the Company and are located in rich countries of Germany: Bavaria,Baden Wurttemberg and North Rhine Westphalia. 27 For additional information see immediate reports of the Company from July 10, 2016 and October 5, 2016 (reference and , respectively) which are brought in this report by way of reference. 28 For additional information regarding the Matrix portfolio which was purchased by the Company in June 2011 and its finance, please refer to 2015 periodic report sections and in chapter A "Description of the Corporation's state of affairs" which was published on March 20, 2016 ( reference ) 8

9 The completion of said transaction was carried out on November 30 which was used for a partial repayment of a portfolio loan from a bank 29. The remaining 9 assets of Matrix portfolio generate annual rent of EUR 8.9 million. In 2016, the contribution of the remaining 9 assets to the consolidated operating profit amounted to EUR 8.1 million. Refinance of loans from German banks at the end of September 2016, the Company completed the refinance of 3 loans from 3 different German banks. The new loans are for a period of 5 years totaling EUR 126 million plus a credit facility of EUR 20 million (for financing the purchase of additional income generating assets in NRW and Hannover region) compared to EUR 113 million, the amount of the repaid loans. The new loans bear fixed weighted average interest of 1.25% per annum compared to weighted average interest of 2.27% of the repaid loans 30. Refinance of additional loans from German banks at the end of December 2016, the Company completed the refinance of 4 loans from 2 different German banks. The new loans are for a period of 7 years totaling EUR 55.8 million compared to EUR 41.8 million, the amount of the repaid loans. The new loans bear fixed weighted average interest of 1.90% per annum compared to weighted average interest (mostly variable) of 1.78% of the repaid loans. Purchase of 18 flats in Leipzig - during the fourth quarter of 2016 and the first quarter of 2017 the Company entered into notarized sale agreements with third parties who are not related to the Company and/or to its controlling shareholder for the purchase of 18 flats in addition to 435 flats that are owned by the Company in the Leipzig Am Zoo asset 31 for a total consideration (including transaction costs) of approximately EUR 550 thousand. The completion of the transaction was financed by the Company's equity and was carried out during the first quarter of Review of Privatization 32 in Leipzig 18 in 2015 and 2016, the Company commenced reviewing the Privatization process for a building spanning over 779 m 2 in Leipzig. As part of such process, the Company expects to invest a total of EUR 1.5 million (including the value of the income generating asset) in adapting the asset and turning it into a building consisting of 8 flats. The total sale consideration is expected to amount to EUR 1.95 million and the expected entrepreneurial profit grosses up a profitability of 30% over total cost and 1.25 times the carrying value of the asset as an income generating asset. As of the report signing date, binding agreements were signed for the sale of 7 flats. The Company explores the option of expanding its activity in this field. 29 For additional information see immediate report of the Company from September 25, 2016 (reference ) which is brought in this report by way of reference. 30 For additional information see immediate report of the Company from October 5, 2016 (reference ) which is brought in this report by way of reference. 31 Were purchased by an investee of the Company where the Company holds (by indirect holding) about 68% of the rights and the remaining rights are held the investors club. The transfer of said shares was not yet performed and the investors hold contractual rights in the joint venture. Leipzig Am Zoo is a residential complex that was purchased in May 2013 consisting of 435 flats at an average area of 34 sq.m per unit. The total leasable area of the complex is 14,660 sq.m 32 Under this review, the Company reviews the profitability of selling some of the apartments which constitute part of the income generating assets to individuals such that each purchaser will purchase a single apartment in a building owned by the Company. Under this process, the Company is required to adapt the asset for sale for the commercial and legal standpoints. 9

10 The Company's residential project in Aachen, Germany - on February 26, 2016, the Company (through sub- subsidiaries) entered with a third party who is not related to the Company and/or its controlling shareholders (the "Partner") into a notarized sale agreement with a third party who is not related to the Company and/or its controlling shareholders (the seller) to acquire ownership rights to the land in the city of Aachen in Germany, on which an old plant which is not in use is erected, for a total consideration of 6 million (the Company's share is EUR 3 million) that was completed in April 2016 after the various required conditions were met 33. The planning authorities in Aachen have agreed with the Company on the planning concept of the project such that it would be feasible to construct residential units (instead of residential units as was indicated in the immediate report published by the Company on the asset purchase date) resulting in increase in the sales volume and the expected profitability in the project compared to the original planning of the project. In addition, in January 2017, the planning authorities in the city have approved to change the planning master plan for the area from industry to residence such that the Company would be able to promote the urban building plan and bring such plan for approval of the planning authorities in the city until the end of 2017 and commence construction in the second half of 2018 simultaneously with issuing building permits for the project. Progress with the development of the residential project in Düsseldorf Below are the major developments regarding the development of the residential project in Grafental in the reported period and until the date of signing the report: a. Performance and marketing of stage B1 the construction of Stage B1 commenced in April 2014 and ended in the fourth quarter of The Company commenced the marketing of Stage B1 of the project in September 2013, which includes 108 flats in multi-family construction and 10 townhouses (about 18,000 m 2 gross) and until February 2016, all 118 apartments in this stage were marketed (signed agreements and reservations) were marketed (about 99.9% of this stage, 2 parking spaces remained unsold) for a total consideration of EUR 56.4 million. As of the report date, the full consideration from selling the flats has been received. b. Delivery of apartments and profit recognition of Stage B1 in the fourth quarter of 2015, and the first quarter of 2016, the Company delivered all 108 apartments of the stage and consequently recognized a profit of EUR 9.9 million. The remaining profit for this stage of EUR 1.4 million was recognized in the last quarter of 2016 upon delivering the 10 townhouses. c. Performance and marketing of Stage B3 the construction of Stage B3 commenced in April 2015 and ended in December Marketing of stage B3 commenced in January 2015 and until the date of signing the report 107 apartments were marketed (signed agreements and reservations) (about 99.8% of this stage 4 parking spaces remained unsold) for a total monetary consideration of EUR 55.1 million (4 parking spaces remained unsold). As of the report date and the date of signing the report, advances of EUR 52.4 million and EUR 54.8 million, respectively, were received from apartment purchasers. 33 For additional information see the Company's immediate report dated February 28, 2016 (reference which is brought in this report by way of reference 10

11 d. Delivery of apartments and profit recognition of Stage B3 in the fourth quarter of 2016, the Company delivered 89 apartments and 4 townhouses and consequently recognized a profit of EUR 9.6 million. The remaining profit for this stage of EUR 1.9 million will be recognized in the last quarter of 2017 upon delivering the remaining apartments. e. Performance and marketing of Stage C in April 2016, upon receiving the building permit, the Company commenced the construction of Stage C which includes 109 flats and 125 parking spaces at a total area of 16,000 m 2 gross. The Company commenced the marketing of Stage C in May 2016 at selling prices higher by 7% compared to Stage B3. As of the report signing date, 96 apartments (signed agreements and reservations) (about 89% of this stage) were marketed at a total monetary consideration of EUR 50.0 million. 11

12 In view of the high demand, at the end of June 2016, the Company updated upwards the selling prices relative to the apartments that were not yet sold by an additional 3% and consequently the expected monetary consideration in Stage C will increase by EUR 1 million and entrepreneurial profit will increase from 26% to 28%. f. Performance and marketing of Stage D the Company filed an application for a building permit for 109 flats and underground parking lot of 125 parking spaces with 10 townhouses (total 119 flats at a total scope of 186,000 m 2 gross) in September The Company intends to commence marketing and sales of Stage D in May 2017 and commence construction of this stage upon receiving the building permit that is expected to be granted in the second quarter of The selling prices that are expected in Stage D gross up an increase of 8% compared to the selling prices of Stage C and consequently the entrepreneurial profitability is expected to increase from 28% in Stage C to 32% in Stage D (for additional information see the table in page 9 below). g. Planning Stages E the Company commenced the planning of Stage E that will include 110 flats and 15 townhouses at a total scope of 17,000 m 2, gross, and filed applications for building permits for this stage in September For additional information on the performance and marketing status of the stages under construction of the project, see the tables below. 12

13 Data according to 100% The effective corporation's share in the project 83%) As of the date of signing the report Quarter 4 Project marketing 2016 (Consolidated) As of the date of signing the report Quarter 4 As of the date of signing the report Quarter 4 Stage B1 Stage B3 Stage C Cumulative agreements signed in the current period: Flats )#( Flats total monetary consideration (including for 56,372 56,372 55,053 55,032 47,557 37,482 parking, EUR in thousands) Flats (square meters) 14,332 14,332 13,263 13,263 10,414 8,205 Average price per sq.m (EUR) (including consideration for parking) 3,933 3,933 4,151 4,149 4,567 4,568 Apartment Reservations* as of the date of signing the reports: Flats )#( Flats total monetary consideration (including for 0 0 2,464 parking, EUR in thousands) Flats (square meters) Average price per sq.m (EUR) 0 0 4,667 Cumulative agreements and reservations signed as of the date of signing the reports: Flats )#( Flats total monetary consideration (including for 56,338 55,053 50,021 parking, EUR in thousands) Flats (square meters) 14,332 13,263 10,942 Average price per sq.m (EUR) 3,933 4,151 4,571 13

14 Marketing rate of the project: (%) As of the date of signing the report As of December 31, 2016 As of the date of signing the report As of December 31, 2016 Marketing rate on the last date of the period - signed agreements 99.9% 99.9% 99.8% 99.8% Marketing rate on the last date of the period - signed agreements and reservations 99.9% 99.8% Advances from tenants Advances from tenants (EUR in thousands) Rate of Advances from tenants (%) As of the date of signing the report 84.7% 89.1% As of December 31, % 56,357 56,337 54, ,384 17,762 7, % 99.8% 99.4% 95.0% 31.6% 12.7% Spaces in respect of which agreements and reservations were not yet signed as of the date of signing the reports: Flats )#( Flats total expected monetary consideration (including for parking, EUR in thousands) ,129 Flats (square In respect of 2 In respect of 4 1,342 meters) NA NA Average price unsold parking unsold parking per sq.m spaces spaces 4,567 (EUR) NA NA Total cumulative cost attributed to spaces in respect of which binding agreements were not yet 2,450 signed in the statement of financial position (consolidated) (EUR in thousands)

15 *)Reservation is a process where a potential purchaser signs a document that includes a description of the apartment and its registered number, number of purchased parking spaces and their registered numbers, amendments to specifications, if any, including the total price (apartment, parking spaces, amendments to specifications) and payment terms. The purchaser deposits EUR 2,000 for the reservation. The reservation is not legally binding and the purchaser may cancel such reservation without a penalty. Forecast of revenues, costs and entrepreneurial profits of the stages in progress and planning (EUR in thousands) Stage B1 Stage B3 Stage C 34 Stage D (in planning) 35 Total expected revenues 56,426 55,169 56,150 67,576 Advances from apartment purchasers as of the report date Advances from apartment purchasers as of the date of signing the report 56,337 52,384 7, ,357 54,847 17,762 0 Total cumulative costs invested 44,795 39,289 22,429 12,827 Total costs remaining for investment 0 4,385 21,338 38,347 Total expected cost (including land (EUR in thousands) 44,795 43,674 43,767 51,173 Completion rate (engineering/monetary)(excluding land)(%) % 87.3% 37.9% 3.0% Total expected entrepreneurial profit 11,631 11,495 12,383 16,402 Total entrepreneurial profit recognized in the Company's financial statements (consolidated) cumulatively as of the report date 11,631 9, Rate of expected entrepreneurial profit (%) 26.0% 26.3% 28.3% 32.1% Expected completion date and profit recognition Fourth quarter of 2015 and first and fourth quarters of 2016 Fourth quarter of 2016 and first quarter of 2017 Fourth quarter of Fourth quarter of The performance of Stage C commenced in April 2016 upon receiving the building permit. 35 The performance and marketing of Stage D are expected to commence in May 2017 upon receiving the building permit. 36 It is stressed that engineering completion rate is not identical to apartment delivery rate and profit recognition rate from delivering the apartments that was carried out when the apartments were delivered. See Note 2ff to the consolidated financial statements which is attached in Chapter C of the 2015 periodic report. 15

16 In accordance with accounting principles, the Company recognizes revenues, costs and gross profit deriving from the stages in progress, upon completion of performance and delivering the apartments to the tenants. The following is a tabular summary of expected revenue, cash flow and entrepreneurial profit, not yet recognized in the financial statements of the company, from stages in progress and from stages under the approved urban scheme which its execution has not yet begun, in Grafental project: From sold apartments (EUR in thousands) Data according to 100%. The corporation's effective portion in the project 83% Revenue not yet recognized Stages in progress (stages B1, B3 and C) 59,216 From apartments not yet sold (EUR in thousands) Cash flow not yet recognized 22,251 Entrepreneurial profit not yet recognized 12,936 Data according to 100%. The corporation's effective portion in the project 83% Stages in progress (stages B1, B3 and C) Stages D E (under approved urban scheme) not yet in progress Revenue not yet recognized 6, ,666 Total 148,965 Cash flow not yet recognized 2, ,115 49,471 Entrepreneurial profit not yet recognized 1,387 30,000 31,387 Betterment of the land in Dusseldorf and changing the zoning to residence the following are the main developments regarding the betterment of lands in Dusseldorf in the reported period and until the date of signing the report: a. with respect to the remaining land that includes construction rights of thousand m 2 for offices (the parcel of land): in the reported period, the Company with Dusseldorf municipality, advanced a new urban scheme for the complex such that it will be feasible to build, with the formal approval of the new urban scheme which is in progress, if approved, on the entire parcel of land an additional 650 flats in addition to 850 flats that are included today in the valid urban scheme (in total 1,500 flats). The Company estimates that if the urban scheme is approved, the 300 flats out of the 650 flats deriving from changing the zoning will be available for construction to commence at the end of 2017 and the balance will be available for construction to commence at the end of b. Purchase of several office and residential buildings in Grafenberg neighborhood for betterment in August 2014, the Company consummated the purchase of land spanning over 20,000 m 2 erected thereon residential and office buildings (generating annual income of EUR 220 thousand) in Grafenberg one of the luxurious neighborhoods of Dusseldorf and adjacent to the Grafental project which is constructed by the Company in Dusseldorf 37. In the reported period, the Company had advanced with the Dusseldorf municipality a new urban scheme for the complex such that it will be feasible to construct 37 For additional information see section in the 2015 periodic report 38 For additional information regarding the above transaction see immediate report dated August 31, 2014 (reference ) which is brought in this report by way of reference. 16

17 a residential project on the land that will include 80 up to 100 flats (a constructed area of 20,000 m 2, gross) (instead of the existing buildings). The Company estimates that said plans will be approved, if at all, by the municipality until the end of 2017 and the land will be available for construction (with the necessary approvals) in the first half of The following is a tabular summary of expected revenue, cash flow and entrepreneurial profit expected from the betterment of the land in Dusseldorf 39 Data according to 100% (EUR in thousands) Revenue not yet recognized Parcel of land under the change of zoning from offices to residence in Grafental 40 and the land in 439,765 Grafenberg Cash flow not yet recognized 159,237 Entrepreneurial profit not yet recognized 84,567 The information described above in connection with stages B3 and that are in progress and stages D and E of the Grafental project (which are included in the approved urban scheme) which their performance was not yet commenced and in connection with the betterment of the lands in Dusseldorf and the change of their zoning (including the expected dates of completion) regarding the total expected sales,the expected entrepreneurial profit and expected cash flows before taxes,is a forward looking information which is not under the full control of the Company and the actual materialization of such change of zoning,in whole or in part,is uncertain. The information is based on information possessed by the Company as of the report date, regarding: 1) demand for residential spaces in Dusseldorf; 2) market prices of residential spaces in Dusseldorf generally and in the area of the projects (including competing projects comparable with the Company's projects); 3) accumulated know how and experience of the Company's management and project managers in the segment; 4) the Company's forecasts and estimates regarding the costs of construction, development, marketing of projects based on the costs of the stages that as of the report date are in progress; and other estimates of the Company. It is uncertain whether the change of zoning will take place and/or consummated, if any, since its consummation is subject to the planning and construction procedures required under German law, the consummation of which is not controlled by the Company. 39 It should be noted that the Company has not yet decided how to use the land under the change of zoning from offices to residence in Grafental and/or the land in Grafenberg including the development of which of the parcels of land. The decision to develop the above lands or any of them is subject to consummating the relevant approval procedures of urban scheme, the market conditions that shall prevail upon completing the urban scheme, the ability to obtain financing for developing the project in the said lands, the availability of equity resources required to realize said development plans, meeting financial ratios and more. The data shown in the table below were calculated under the assumption that the Company shall elect to develop the land complexes and the rates of entrepreneurial profit and cash flow in future stages shall be similar to the rates of the Grafental project that are in progress as of the report date (entrepreneurial profit of 28% - 32% and cash flows of 35% - 40% of the scope of sales). 40 The corporation's effective portion in said parcel of land is 83%. 17

18 In addition,even if the approvals are received and the Company will resolve to establish the projects independently and the performance of the projects will be executed, change in circumstances (including without derogating from the generality of the foregoing decrease in demand for flats in Dusseldorf and/or decrease in market prices of flats in Dusseldorf) or increase in construction costs (and other costs) and/or the formation of special conditions that may significantly change the Company's estimates detailed above and have a material impact on the expected revenues from the projects,including their overall profitability. 18

19 Part A Board of Directors Explanations in regard to the State of the Corporations' Businesses, the Results of its Activities, its Equity and Cash Flows; (1) Financial Position Current assets Assets December 31 December 31, EUR in thousands Explanation for the change Cash and cash equivalents 89,278 55,820 See details in the statement of cash flows Balances receivable from banks 2,221 24,969 Profit from hedging transactions for immediate withdrawal. The decrease in the reported period derived from the realization of the transactions and receipt of the consideration in cash by the Company Restricted deposits and other receivables 10,088 12,031 Tenants and trade receivables 3,545 5,677 Movement mainly derives from movement in the construction projects accounts and payment of advance for the purchase of assets Other financial assets Inventory of buildings under construction 45,754 59,589 Total current assets 150, ,585 Asset held for sale Non-current assets: - On one hand, increase in inventory in respect of progress in constructing Stages C and D and classification from long term land inventory to short term land inventory and on the other hand, decrease in inventory for hand over apartments in Stage B1 and B3. In respect of agreement for sale of assets, see material events in the reported period Investments measured at equity 8,318 5,005 Inventory of real estate 13,820 25,591 Investment property real estate rights 101, ,038 Investment property income producing assets 1,089, ,243 Restricted deposits for investments in assets 2, Other accounts receivable and other financial assets 2,414 1,481 Fixed assets Deferred taxes 3,608 8,585 Total non-current assets: 1,222,882 1,122,483 The increase in the reported period derives the purchase of an asset in Aachen. The decrease in the reported period derives from classification to short term inventory The increase in the reported period derived from purchases, capex investments in existing assets and revaluation profits, net of disposals. See material events in the reported period. Total assets 1,373,768 1,281,068 19

20 Liabilities Current liabilities: December 31 December 31, EUR in thousands Current maturities of loans from banks 16,164 68,491 Current maturities of debentures 17,750 16,623 Loans for financing inventory of buildings under construction 7,000 3,500 Current maturities of other financial liabilities Accounts payable 26,270 20,073 Advances from apartment purchasers 16,073 35,687 Total current liabilities 83, ,767 Explanation for the change The decrease derives from classification of loans to long term from refinancing. See material and other events in the reported period. The decrease in the reported period derives from repayment of land loan on one hand and withdrawal of temporary finance for construction, on the other hand. Non-current liabilities: Loans from banks and others 568, ,887 The main increase in the report period derives from refinancing of a loan that was classified in the previous quarter as short term and from taking a loan to finance purchases and refinance. For details see material and other events in the reported period. Debentures 130, ,076 Other liabilities 3,133 3,148 Other financial liabilities Deferred taxes 68,099 51, , ,201 Total liabilities 853, ,968 Equity Equity attributable to equity holders of the company 419, ,523 Non controlling interests 100, ,577 The increase in the reported period mainly derives from a profit in this period offset by a capital distribution Total equity 520, ,100 Total liabilities and equity 1, 373, 768 1,281,068 20

21 (2) Activity Results Year ended December 31 Year ended December 31, Year ended December 31, EUR in thousands Explanation for the change Revenues from rental of properties 72,111 66,415 60,512 Revenues from property management and others 25,539 26,277 22,119 Property management expenses ) 25,064( ) 24,072( )21,401( Cost of maintenance of rental properties ) 8,803( ) 8,105( )6,331( Rental and management revenues, net 63,783 60,515 54,899 Revenues from sale of apartments 73,935 68,372 70,933 Cost of sale of apartments ) 58,537( ) 54,637( )58,499( Income from the sale of apartments 15,398 13,735 12,434 General and administrative expenses ) 12,594( ) 11,090( )9,325( General and administrative expenses attributed to inventory of apartments under construction and inventory of real estate ) 2,222( ) 1,799( )2,082( selling and marketing expenses ) 422( ) 242( )367( Cost of share based payment ) 1,227( ) 1,525( ) 1,554( Increase (decrease) in the value of investment property, net 80,459 44,256 23,304 Operating profit 143, ,850 77,309 Financing income Financing expenses excluding the effect of exchange rate differences, CPI and hedging transactions, net ) 20,716( ) 21,162( )20,520( Effect of exchange rate differences, CPI and currency hedging transactions, net ) 3,399( 3,424 10,353 Change in the value of loans and interest rate swap transactions, net ) 3,793( 6,023 )13,949( Income before taxes on income 115,292 92,217 53,484 Taxes on income ) 26,586( ) 14,725( )6,029( Purchase of new assets and increase in rental fees in identical assets Hand over of apartments in Stages A and B of the residential project Increase in the Company's activity Increase in bank loans for financing the purchase of new assets offset by current repayments of bank loans and bonds and decrease in interest rate of refinancing loans Decrease of the interest curve in Europe hedge transactions and onetime refinancing expenses Reported net income 88,706 77,492 47,455 Net income attributed to: Company shareholders 76,276 63,439 37,954 Non-controlling interests 12,430 14,053 9,501 21

22 3) Cash flows Year ended December 31 Year ended December 31, Year ended December 31, EUR in thousands Explanation for the change Cash flows provided by operating activities (cash Expansion of the Company's activity and the timing of receipts flows used in operating from the residential development activities) 71,086 80,048 70,484 project Cash flows provided by investing activities (Cash flows used in investing activities) ) 62,275( ) 45,246( ) 133,530( Purchase of new assets Cash flows provided by financing activities (Cash flows used in financing activities) 24,647 ) 39,187( 89,291 22

23 Access to financing sources the Company evaluates its accessibility to financing sources as very high in light of its financial strength, the stability of core activity, and the good relationships it has created with the banks financing real-estate projects in Germany. It is indicated that for the period of twelve months ended December 31, 2016, the Company has in its solo reports (but not in the consolidated reports) negative cash flows from operating activity amounting to EUR 1,584 thousand and for the period ended December 31, 2015, the Company has in its solo reports positive cash flows from operating activity resulting from the effect of exchange rates on cash balances and therefore is not representative. The Board has determined, based on its examination, that this does not indicate on liquidity difficulty since cash flows and liquid balances in the Company (solo) with the unlimited liquid balances which can be distributed immediately to subsidiaries as of the signing date of the report amount to EUR 95 million compared to its current liabilities amounting EUR 18 million so as of the report signing date, the Company (solo) has a working capital surplus of EUR 77 million consisting of cash balances and liquid balances. The Board believes that the issue at hand is merely technical whereas in view of the high liquid balances maintained by the Company (solo), the Company elected not to receive management fees or distribute dividends from its wholly owned subsidiary (Brack German Properties B.V) and therefore no current revenues were recorded under the separate activity of the Company (solo) in a manner resulting in negative cash flows from operating activity of the solo company in said periods. (4) FFO (Funds from Operations) Calculating FFO the FFO index is calculated as the net profit (loss) attributed to Company's shareholders from the income generating activity only excluding the income from sale apartments in Grafental project (FFO I) with some adjustments for non-operating items, which are affected from the revaluation of the fair value of assets and liabilities. It deals mainly with adjustments of the fair value of investment property, miscellaneous capital profits and losses, miscellaneous amortizations, adjustment of expenses for management and marketing of the Düsseldorf project (since the revenues in respect of this project are not taken into account in the FFO), changes in fair value recognized for financial instruments, deferred taxes and non controlling interests for the above items. The Company believes that this index reflects more correctly the Company's operating results, without the entrepreneurial project and its publication will provide a more correct basis for comparing the Company's operating results in a certain period with prior periods, and will enable the comparison of the operating results with other real-estate companies in Israel and in Europe. The Company clarifies that the FFO index does not represent cash flows from operating activity according to generally accepted accounting principles, does not reflect cash held by the Company and its ability to distribute it, and does not replace the reported net profit (loss). In addition, it is clarified that these indices do not constitute data audited by the Company's auditors. 23

24 Below is the calculation of the Company's FFO for the said periods: Net profit (loss) attributed to the Company's shareholders Adjustments for net profit (loss): Three months ended December 31, 2016 Three months ended December 31, 2015 Year ended December 31, 2016 Year ended December 31, ,629 19,563 76,276 63,439 A. Adjustments for revaluations Increase (decrease) in the value of investment property and adjustments of liability value relating to investment property Revaluation of loans and interest swap transactions at fair value B. Adjustments for non cash flow items Cost of share-based payment and changes in capital reserves Amortization of financing costs, indexing and non cash exchange rate differences and hedging transactions Interest component in hedging transactions Deferred tax expenses (income) and taxes for prior years C. Unique items / new activities / ceased activities / other Depreciation and contributions, professional services and onetime expenses Adjustments related to associates and non controlling interests Expenses relating to project management and marketing in connection with the establishment of residential project in Düsseldorf and adjustments in respect of current leasing activity in the project Income from sale of apartments Total of adjustments to net profit (loss) F.F.O ) 20,837( ) 10,978( ) 72,261( )38,575( 554 ) 62( 3,867 )6,385( ,327 1,734 2,516 1,877 5,367 )1,778( , ,417 5,426 24,308 12, ) 246( 1,553 1, ) 2,665( ,236 2,862 ) 9,158( ) 10,201( ) 12,781( )11,400( ) 16,596( ) 13,025( ) 46,990( )39,167( 8,033 6,538 29,286 24,272 As aforesaid, the FFO I in the three months ended December 31, 2016 amounted to approximately EUR 8 million, grossing up an annual FFO rate of EUR 32.1 million. 24

25 5) EPRA NAV Index Net Asset Value (EUR in millions) The EPRA NAV is an index purported to show the net asset value of the real estate company according to the status paper of EPRA - European Public Real Estate Association. The EPRA NAV reflects the net asset value of the Company assuming that assets are held for a long term and therefore certain adjustments are required such as neutralizing deferred taxes deriving from revaluation of investment property and neutralizing the fair value of derivative financial instruments. Furthermore, the adjustments made by the Company under this index include the addition of profits that were not yet recognized in the statements in respect of apartments under construction that were sold in Grafental project (stages A and B). The Company believes that this index reflects more correctly the net asset value of the Company and its publication will enable the comparison to other real estate companies in Israel and Europe. The Company clarifies that the EPRA NAV index data do not represent a valuation nor they represent a substitute to the data contained in the financial statements. It is further clarified that these data are not audited by the Company's auditors. The following is the calculation of the EPRA NAV index and the adjusted EPRA NAV index of the Company: As of the report signing date As of December 31, 2016 EUR in millions As of December 31, 2015 EUR in millions Equity attributed to the Company's shareholders Plus deferred taxes for EPRA adjustments (net of non controlling interest) Net of fair value of derivative financial instruments, net (net of non controlling interest) Plus profits that were not yet recognized in respect of apartments that were sold and are under construction in stages B and C of the residential project EPRA NAV Net Asset Value ) Events after the date of the report, affecting the Company's financial position Capital issuance on January 31, 2017, the Company completed a public offering of 598,540 shares and 299,270 warrants (Series 1) exercisable into 299,270 shares of the Company at a total monetary scope of EUR 49.5 million (gross) by a uniform offer in the tender on the unit price pursuant to a shelf offering report that was published on January 29, 2017 by virtue of the shelf prospectus bearing the date of May 29, Purchase of residential portfolio in Hannover, Germany - on February 8, 2017, the Company (through sub subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the seller will sell the Company 156 residential units in Hannover, Germany (in this sub section only: the acquired asset) for a total consideration of EUR 18 million (including related transaction costs). 42 For additional information see immediate report of the Company dated January 31, 2017 (reference number ) which is brought by way of reference. 25

26 For the purpose of financing the purchase, the Company (through a sub-subsidiary) negotiates with a German bank to obtain a loan in the amount of EUR 10.4 million under non-recourse terms which its final repayment date is 5 years from the date of receiving the loan bearing a variable interest based on Euribor plus a margin of 1.20% per annum. The transaction is expected to be completed in May Purchase of residential portfolio in Essen, Germany - on February 22, 2017, the Company (through a sub subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the Company will purchase from the seller 320 residential units in Essen, Germany for a total consideration of EUR 23.6 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a sub-subsidiary) negotiates with a German bank to obtain a loan in the amount of EUR 16 million under non-recourse terms which its final repayment date is 5 years from the date of receiving the loan bearing a fixed interest rate of 1.08% per annum. The transaction is expected to be completed in June Purchase of residential portfolio in Leipzig, Germany - on March 2, 2017, the Company (through a sub subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder under which the Company will purchase from the seller 43 residential units (4 buildings) in Leipzig, Germany for a total consideration of EUR 5.0 million (including related transaction costs). Such portfolio spans over an area of 3,178 sq.m and the occupancy rate amounts to 95%. The portfolio generates annual rental of EUR 186 thousand. In view of the scope of the transaction, the transaction will be financed by the Company's equity without external financing. The transaction is expected to be completed in April Advancement of construction rights in existing residential complexes the Company advances the review of the possibility of adding an additional construction rights in existing residential complexes. For the avoidance of doubt, construction rights, if any, are not reflected in the appraisals of the assets. Part B Exposure to Market Risks and Way of Managing Them Market risks to which the Company is exposed Exchange rate effects as of the report date, the Company's net currency exposure, net of the liabilities for which the Company carried out currency hedging transactions is at a rate of 7.93% of its total scope of assets as a result of the Company's liabilities due to the bonds (Series A, B and C) that were issued to the public in Israel and are denominated in NIS. Other than that, the Company is not exposed to material changes in currency exchange rates, as most of its activities, assets and liabilities are denominated in EUR. The Company reviews from time to time, the possibility, and hedges its liabilities in NIS, partly or wholly, against future changes in the EUR/NIS exchange rate. 43 For additional information see immediate report of the Company dated February 9, 2017 (reference number ) which is brought by way of reference. 44 For additional information see immediate report of the Company dated February 23, 2017 (reference number ) which is brought by way of reference. 26

27 The fair value of the Company's primary financial instruments As of the report date, most of the Company's financial instruments are presented at their fair value. Below are sensitivity tests for changes in the fair value of the Company's primary financial instruments, due to changes in the interest (in EUR thousands): The basic interest is 3-month Euribor. December 31, 2016: Bonds *) Fixed-interest loans Interest rate swap transactions which are not recognized as accounting hedging Total 10% 1, ,505 5% Fair Value )161,297( )269,585( )875( )431,757( -5% )907( )157( )11( )1,075( -10% )1,607( )315( )26( )1,948( *) The fair value of the bonds is presented at its quoted value in the Tel Aviv stock exchange. The sensitivity tests are performed based on the interest basis deriving from this value. Below are sensitivity tests for changes in the fair value of the Group's primary financial instruments, due to changes in the EUR-NIS exchange rate (in EUR thousands): December 31, 2016: Bonds (net of cash held in NIS) 10% 16,090 5% 8,045 Fair Value )160,905( -5% )8,045( -10% )16,090( Below are sensitivity tests for changes in the fair value of the Group's primary financial instruments, due to changes in the EUR-NIS exchange rate (in EUR thousands): December 31, 2016: Currency hedging transactions 10% )4,000( 5% )2,000( Fair Value 2,145-5% 2,000-10% 4,000 Below are sensitivity tests for changes in the fair value of the Group's primary financial instruments, linked to the consumers' price index, due to changes in consumers' price index December 31, 2016: Bonds 4% )6,452( 3% )4,839( Fair Value )161,297( -3% 4,839-4% 6,452 27

28 The fair value of the investment properties is also affected by changes in the interest rate in the market. A permanent increase / decrease (increase/decrease forecast by the market as one which is not temporary, but rather characterizes a medium/long-term trend) in market interest rates will lead to changes in the requested yields on real-estate properties (although there is no full correlation between the change in market interest levels and the change in yield on properties), and to a decrease / increase in their fair value, respectively. However, since only a change in market interest levels forecast as being permanent will lead to a change in the fair value of the Company's properties, the transmission between the change of interest in the market and the change in the fair value of the Company's properties is "slow", and occurs over time (usually, a period of between 6 and 9 months is necessary before realestate prices in the market react to changes in market interest rates). Therefore, the effect of the increase in market interest rates, which generally leads, after a certain period of time, to a decrease in the fair value of the Company's properties, will be offset by the decrease in the fair value of the Company's financial liabilities, and vice-versa. Linkage basis report Apart from the payments due to the bonds issued by the Company to the public in Israel that are denominated in NIS, the Company's entire activity as of the report date is performed in EUR, and therefore the Company's assets and liabilities are affected mainly by the EUR currency. The payments of principal and interest due to the bonds issued by the Company will be paid in NIS and linked to the consumers' price index. As at the Report Period, the Company has no material exposure to other currencies except for NIS. 28

29 Part C Corporate Governance Aspects The Company is a Dutch company and the provisions of the Companies Law, (hereinabove and hereinafter: "the Companies Law") do not apply thereto, with the exception of such sections of the Companies Law which apply to a foreign company offering shares to the public in Israel, by virtue of Section 39A of the Securities Law, (hereinafter: "the Securities Law"). On February 17, 2016, the Securities Order came into force (replacing the fourth addendum of the law ( whereby the fourth amendment to the Securities Law has been replaced with the new fourth addendum which is twofold :Part A,which applies the provisions of corporate law which will apply to companies incorporated outside Israel (below and only in this sub section "foreign companies which shares are offered to the public in Israel - including applying the provisions of sections of the Companies Law regarding a permitted distribution,dividends,acquisition and prohibited distribution (hereinafter" :part A of the fourth addendum) and Part B which applies the provisions of corporate law on foreign companies offering liability certificates to the public. It is clarified that the fourth addendum will not apply to foreign companies offering shares or liability certificates to the public prior to the legislative amendment (like the Company). Nevertheless, the amendment will apply to every foreign company (including the Company) that will carry out an IPO of securities from the amendment date (February 17, 2016 onwards) including foreign companies (including the Company) which carry out a reissuance. Accordingly, since the Company performed reissuance of bonds (Series C) on April 4, 2016 starting from that date, the amendment applies to the Company. (1) Further to the aforesaid and according to the directive of the Securities Authority (ISA) for foreign companies, which section 39a is applicable to them, to update the incorporation documents such that they reflect the provisions of the fourth addendum, the Company has taken the following actions: (a) Recently the Company has reviewed with its legal advisors in Holland a formal enshrinement of the provisions of the companies law in the Company's articles of association so as to reflect the above fourth addendum and upon the conclusion of such review (and subject to the approval of the board) it intends to summons a general meeting of shareholders for approving the revised articles; (b) for the avoidance of doubt it is stressed that the review as stated in sub section A above was not yet completed however based on interim findings it appears that there is no prevention to include those provisions, mutatis mutandis(,as far as those were not yet enshrined in the Company's articles) and regarding the derivative claim and answer and monetary sanction by approximate performance as stated in sub section (c) below; (c) since the sections of the derivative claim and answer (sections a of the companies law) and the sections of imposing monetary sanction (sections 363a(a) and (b)(2) to (12), 363b and 363c of the companies law) cannot be enshrined explicitly in the Company's articles since they are not in line with the absolute law applicable to the Company in Holland, the Company intends to include in the articles provisions that relate to jurisdiction and application of law including the derivative claim and answer and imposing administrative enforcement measures by the ISA; 29

30 (d) in addition to the aforesaid, on January 29, 2017, the deeds of trust were amended between the Company, on one hand and Reznik Paz Nevo Trusts Ltd. on the other hand as the trustee for the bondholders (Series A C) such that the deeds of trust contained the obligations of the Company/officers in connection with imposing monetary sanctions and/or administrative enforcement measures on the Company and/or its officers 45 as well as the obligations of the Company and its officers not to raise any allegations against the right of the bondholders to file a derivative claim (the obligations of the Company and officers). Furthermore, the obligations of the Company and officers were included in the shelf offering report published by the Company on January 29, 2017 under the shelf prospectus dated May 28, 2015 bearing the date of May 29, 2015; (2) Details regarding the Corporation's internal auditor Name of auditor Irena Ben Yakar, CPA Term commencement date May 25, 2011 Meeting the internal audit conditions Designation of activities Personal matter Holding the company's securities Business/material relations with the The Internal Auditor meets the conditions prescribed in Sections 3A of the Internal Audit Law ( )(the Internal Audit Law) The Internal Auditor does not hold any other position in the company other than serving as an internal auditor. The internal auditor does not hold any other position out of the company that results or may result in conflict of interests with her position as an Internal Auditor of the company. The internal auditor is not a related party in the company does not hold a position in the company and is not related to any of the above and does not serve as an auditor or anyone on his behalf and does not provide external services to the company, except for internal auditing services. The internal auditor, as per its notice, does not hold the Company's securities nor it holds securities of an entity related to the Company as defined by this term in the fourth addition to securities regulations (periodic and immediate reports) 1970 (the reports' regulations) The Internal Auditor does not have any material business relations with the company or other 45 Not to raise allegations against the powers of ISA and/or the administrative enforcement committee in Israel in connection with monetary sanctions and/or administrative enforcement measures that will be imposed on the Company and/or its officers (as the case maybe) by ISA and/or the committee pursuant to Chapter H3 and/or Chapter H4 of the securities law and uphold the resolutions of ISA and/or committee including, without derogating from the generality of the foregoing, pay the monetary sanctions and/or payments to injured parties from the violation to be imposed on the Company and/or its officers (as the case may be and if imposed at all) and to take actions to cure the violation and its recurrence. 30

31 company Appointment of the internal auditor The auditor's qualifications The auditor as an external party Scope of transaction The audit plan material relations with the company nor does it have such relations with an entity related to the Company as defined by this term in the fourth addendum to reports regulations The internal auditor's appointment was approved by the company's board of directors on May 25, 2011 based on the recommendation of the company's audit committee and based on its professional experience as internal auditor in the area of internal audit. The auditor holds CPA license from 2003 and is a partner in the CPA firm of Deloitte, Brightman, Almagor Zohar. She possesses an extensive experience in risk management and internal audit alongside rich experience in preparing internal audit in public companies. The auditor provides internal audit services as an external party, by her team from Brightman Almagor Zohar & Co. The company's audit committee approved an audit plan in a scope of 450 hours for Under this plan, processes were examined in the Company including: managing a budget for residential development project, reviewing processes relating to wages and human resources and correcting flaws from prior audit reports. In 2015, the scope of the audit plan amounted to 470 hours. The audit plan is multi-annual and its cost is based on a rate of NIS 250 per hour (on average) and to the Company's best understanding, the scope of remuneration does not affect the discretion of the auditor. The audit plan is part of a multi-annual plan. The planning of the audit tasks, setting priorities and audit frequency are affected by the following: The likelihood of managerial and administrative defects, the exposure to risks of activities, issues requiring an audit by the managing bodies, issues required by law, pursuant to internal or external procedures, the need to maintain cyclicality in issues that were tested previously. Setting the annual work plan of the internal audit in the corporation was done in collaboration with the company's joint CEOs, the chairman of the audit committee and internal auditor and her team. The annual work plan is approved by the Company's audit committee at the beginning of each fiscal year. 31

32 Professional standards The organizational supervisor of the auditor Scope, nature and continuity of the activity and work plan of the internal auditor Free access for the internal auditor The internal auditor report Remuneration The internal auditor, by her notice, prepares the audit according to International Audit Standards of the International Institute of Auditors (IIA) Pursuant to the resolution of the company's board, the responsible party is the chairman of the audit committee. To the best knowledge of the company,the nature and continuity of the activity and work plan of the internal auditor are reasonable in the circumstances and they are serving the purpose of fulfilling the internal audit objectives in the company. The internal auditor shall have free access as aforesaid in the above section 9 of the internal audit law, including continuous and direct access to the company's information systems including financial data. The internal auditor shall submit her reports in writing to the audit committee and the Company's management. The findings of the audit for 2016 were delivered to the Company's management and audit committee on various dates during On such dates discussions were held in the audit committee and the internal auditor shared the findings of the audit. Professional fees for internal audit services were determined to the amount equivalent to NIS 250 per hour on average. (3) Translation of the report to English Without derogating from the liability, pursuant to the law, of each Board member for the contents of this report, it is clarified that the members of the Board of Directors the Messers Jan Van Der Meer, Lambertus Van den Heuvel, Robert Israel, Ulrich Tappe, Willem Van Hassel and Mrs. Nansia Koutsu), are not Hebrew speakers 46. The members of the Board of Directors informed the Company that they approved this report based on the translation of the report to English and not the original version of the report in Hebrew. Said directors stated that they are aware that the binding version of the report is in its original version in Hebrew. 46 It is noted that Mr. Or Levkovitz who serves as a director on the Company's board from January 5, 2017, is a Hebrew speaker. 32

33 (4) Donations In 2016, the Company donated EUR 84 thousand (including EUR 16 thousand to Acharai Association). To the Company's best knowledge, there are no relations between this association and directors and officers in the Company, the controlling shareholder or his relatives. On March 23, 2017, the Board of Directors approved a donations budget of EUR 85 thousand for (5) Directors with accounting and financial expertise and independent directors For information regarding the skills, education and experience of the Messers Jan Van Der Meer (the chairman of the Board of Directors), Lambertus Van Der Heuvel (external director), Willem Van Hassel (external director), Robert Israel (independent director) Ulrich Tappe (director and manager of the development division of the Company) and Nansia Koutsu (director) in respect of which the Company views them as directors having accounting and financial expertise, see regulation 26 in the chapter "Additional Information About the Corporation" which is attached in chapter D to this periodical report. (6) Information on the external auditor The following is the information on the professional fees of the auditor: 2016 PKF Amit, Halfon: Hours Euro in thousands Audit services and audit related services 4, Other services PKF Amit, Halfon: Hours Euro in thousands Audit services and audit related services 4, Other services - - The auditor's professional fees are determined based on work hours according to the rates approved by the Company's Board of Directors. 33

34 (7) Events after the date of the statement of financial position relating to corporate governance in the Company a. On March 3, 2017 the Company was informed by an interested party in the Company Brack Capital First B.V. (First) (which is wholly owned and controlled by Brack Capital Real Estate Investments N.V 47 (BCRE) pursuant to the provisions of section 63(b) of the Companies' Law 1999 and Regulation 21 of the Company's articles of incorporation regarding a request to convene a special meeting of the Company's shareholders (below and respectively: "The Notice Date" "the Interested Party Notice" or "The Notice" and "The Meeting"). In the Notice, the Company's Board of Directors was requested by the interested party to convene a meeting with an agenda that shall include the appointment of 3 additional directors (who are not external directors) to the Company's Board of Directors including the appointment of a director (who is not an external director) in the Company of Mr. Ariel Podroisky who serves as the CEO of BCRE and a resolution regarding the termination of service of Mr. Robert Israel who serves as an independent director in the Company since October For additional details see immediate report dated March 5, 2017 (reference ) the information contained therein is brought in this report by way of reference. b. On March 6, 2017 Standard and Poor's Maalot Ltd. ( "Maalot"), announced that following the notice of the interested party, the object of section 1 above, that if Maalot evaluates that the change in the structure of the Board violates the independence and weakens the disconnect between the Company and the group, Maalot will be required to reconsider the rating, including the potential impact of the credit quality of the entire group on the Company's rating. Maalot also noted that the changes, if any, in the investment policy or financial policy, may also lead to a reassessment of the business risk profile and the financial risk profile of the Company thereby affecting the Company's rating. For additional details about the announcement of Maalot see immediate report dated March 6, 2017 [Reference No ] to which this notice is attached, the information contained therein is brought in this report by way of reference. c. On March 6, 2017, the Company was delivered by an interested party Psagot Investment House Ltd. a letter issued on that date to the members of the Noard of First regarding the notice the object of section 1 above. In the letter Psagot indicates that the requested actions, the object of the notice of the interested party are unusual and problematic and therefore Psagot requested the reference of First to number questions regarding the reasons for the act and its purposes. For additional details see immediate report dated March 6, 2017 [Reference No ] to which is such letter is attached, the information contained therein is brought in this report by way of reference. d. On March 10, 2017 the Company's Board of Directors was convened in which the following resolutions were made: (1) The establishment of a special Ad-Hoc committee (the committee) to examine the request of the interested party to convene a meeting, as aforesaid, on its components, including the possible effects on the independence of the Company's Board of Directors from the standpoint of Dutch law and from the standpoint of the applicable law in Israel and the ramifications of such effects (if any) on the business operations of the Company for the benefit of its shareholders. 47 A public Dutch company, whose shares are listed for trade in the main list of London Stock Exchange (LSE). BCRE indirectly holds by First and companies under its control the Company's shares constituting approximately 26.84% of the voting rights in the Company. 34

35 For additional details on the committee including its members and powers see immediate report dated March 13, 2017 (reference ) the information contained therein is brought by way of reference. At the end of the examination process, the committee should submit its conclusions and recommendations to the Board of Directors in this regard; (2) Following the announcement of Mr. Jan Van Der Meer that he is willing to stay on the Board of Directors until the end of the next annual meeting of the Company the Board of Directors had directed the Company's' appointments committee 48 to suspend the process of locating an independent candidate to serve as the new chairman of the Board of Directors for the Company a process which was recently commenced. e. Mr. Jan Van Der Meer had informed the Board members in the Board meeting from March 10, 2017, that based on recent events, he notified the Board of Directors of BCRE on the immediate termination of service as director in BCRE and he is willing to stay as the chairman of the Board of Directors until the next annual meeting of the Company 49. f. On March 10, 2017, at noon, immediately before the convening of the Company s Board of Directors, Mrs. Nansia Koutsou, who serves as a director (not external) on the Board of Directors as well as the CFO and VP of Operations in BCRE, sent an to the other Board members in which it notifies that she intends to resign from her position as a director on the Company's Board and a letter of resignation will be sent to the other Board members in the upcoming week. On March 20, 2017 at the late evening hours, Mrs. Nansia Koutsou sent an to the other members of the Company's Board of Directors in which she announced that further to her previous announcement dated March 10, 2017 (in which she reported that she intends to resign from the Board of Directors) and after that she had considered the resignation option from the Board of Directors she had reached a conclusion to remain in her position as a member of the Board of Directors. With respect to the end of this section, see immediate report dated March 21, 2017 (reference ). g. On March 14, 2017, the Company published an immediate report which brought to the attention of the public a number of events that occurred recently in the Company that may shed a light, in the opinion of the Company's Board of Directors, on BCRE's attempt to change the composition of the Company's Board of Directors.For details, see the immediate report of March 14, 2017 (Ref ), the information contained therein is brought in this report by way of reference. h. On March 15, 2017, the Company has made its response in writing (the Response Letter) to First after that the Board of Directors approved on that date the contents of such response with the approval of all of the serving members of the Board of Directors, other than Mrs. Nansia Koutsou who did not participate in the decision making in this meeting and Mr. Robert Israel (independent director) who abstained. In the response letter, the Company indicated that it will not convene the Meeting as was requested by First for the reasons indicated in the immediate report. In addition, the Company has indicated in the Response Letter that it requests to extend the response time for the Request for a maximum period of 180 days from the Request date (namely March 3, 2017) (the Response Period) so that the Company could learn the reasons for the Request and allow the entire stakeholders in the Company discuss and balance all interests for such parties. Therefore, the 48 The committee includes Messers Bert Van Den Heuvel and Willem Van Hessel who serve as external directors on the Company's Board of Directors, Mr. Robert Israel who serves as an independent director on the Board of Directors and Mr. Jan Van Der Meer, the chairman of the Board of Directors. Mr. Willem Van Hessel was appointed as the committee chairman. 49 In this regard, it should be noted that on January 11, 2017, Mr. Van Der Meer (chairman of the Board of Directors) had notified the Company on his resignation from the Company's Board of Directors to take effect from April 1, To the Company's best knowledge, and as it was informed from Mr. Van Der Meer, on the same date, he notified on his resignation also from Board of Directors of BCRE. 35

36 Company addressed First with a proposal that it will confirm in 8 days from the Response Letter date to honor the Response Period and during the Response Period First will not summon the shareholders' meeting. The Company added and indicated in the Response Letter that if First's approval is not granted in the period allocated, the Company will institute a legal proceeding in the court in Amsterdam (Enterprise Chamber with the Court of Appeal in Amsterdam) and will request the court's involvement in the matter including the initiation of inquiry proceedings and directing the issuance of temporary orders which purpose, among others, is to prevent the change in the compositions of the Board of Directors by the shareholders' meeting subject to such proceedings. For additional details on the response letter see immediate report dated March 15, 2017 ( ) the information contained therein is brought in this report by way of reference. i. On March 23, 2017 in the afternoon, the reply of First to the Company s letter of March 15, 2017, was received. j. In its reply dated March 23, 2017, First filed number of arguments against the Company s Board of Directors and management. (Arguments which the Company is rejecting). At the same time, it announced that it had decided to withdraw, for the time being, its request to convene a special meeting (As mentioned in sub-paragraph (a) above). First clarified in its letter that withdrawal of the request is done without prejudice or waiver of its rights. 36

37 Part D Disclosure Provisions in Regard to the Corporation's Financial Reporting Events after the date of the Statement of Financial Position See part A, section (6) as aforesaid. Critical Accounting Estimates Regarding critical accounting estimates see note 2 to the annual audited consolidated financial statements for 2016 which is attached in part C of this periodic report. Disclosure on material and very material valuations and material appraisers First quarter of 2016 Second quarter of 2016 Third quarter of 2016 Fourth quarter of 2016 Material valuation 50 Commercial asset in Rostock Residential portfolio in Leipzig very material valuation 50 None None Reference to condensed data on valuation according to regulation 8b(I) of the reports' regulations/ reference to a valuation that was attached to the quarterly/periodic report (if at all) See Part D of Chapter II ("The board's report on the corporation's state of affairs), in the Company's quarterly report as of March 31, 2016, which was published on May 22, 2016 [Reference No ]2016 See Part D of Chapter II ("The board's report on the corporation's state of affairs), in the Company's quarterly report as of June 30, 2016, which was published on August 23, 2016 [Reference No ] None None --- None None --- It is indicated that the Company's main appraisers are JLL and DIWG which the rate of the assets appraised by them in 2016 constitute 46% and 49% of the value of assets in the balance sheet, respectively. JLL and DIWG are independent of the Company. 50 as defined in the reports' regulations 37

38 Part E Specific Disclosure for Bond Holders 1) Following are details regarding the liability certifications issued by the Company which are held by the public as at the date of the report according to the eighth addendum of the reports' regulations: Bonds (Series A) Bonds (Series B) Bonds (Series C) Is the series material (as this term is defined in Regulation 10(B)(13)(a) of the Reports' Regulations? Yes Yes Yes Date of issue March 1, 2011 May 21, 2013 July 22, 2014 Date of expanding series June 19, 2012, November 6, 2012 February 4, 2014 April 4, 2016 Par value on the date of issue (thousands NIS) 200, , ,165 Par value on the date of expanding series (thousands NIS) 240,000; 400, , ,180 Par value as at (thousands NIS) 228, , ,911 Linked par value as at (thousands NIS) 237, , , 611 Sum of cumulative interest plus linkage differentials (thousands NIS) as at Value in financial statements as at including interest payable (thousands NIS) Value at the stock exchange as at (thousands NIS) 5,275-2, , , , , , ,176 38

39 Type and rate of interest 4.8% (annual, linked, fixed rate), subject to adjustments in cases of changes in the rating of the bonds (Series A) and/or non compliance with the financial covenants specified in Sections and of the shelf prospectus dated May 24, 2012 as amended on May 9, 2013 and as amended on July 14, 2014 (the shelf prospectus) 3.29% (annual, linked, fixed rate), subject to adjustments in cases of changes in the rating of the bonds (Series B) and/or non compliance with the financial covenants specified in Sections and of the shelf prospectus 3.30% (annual, linked, fixed rate), subject to adjustments in cases of changes in the rating of the bonds (Series C) and/or non compliance with the financial covenants specified in Sections and of the shelf prospectus Dates of paying principal Payable in 7 annual installments on July 14 of each of the years 2014 to 2020 (inclusive) such that each of the first six installments will constitute 14.28% of the principal of the total par value of the bonds (Series A), and the last installment will constitute 14.32% of the total par value of bonds (Series A). Payable in 12 unequal annual installments on December 31 of each of the years 2013 to 2024 (inclusive) such that each of the first seven installments will constitute 4% of the principal of the total par value of the bonds (Series B), and each of the last five installments will constitute 14.4% of the principal of the total par value of bonds (Series B); the first principal payment will be on December 31, Payable in 12 unequal annual installments on July 20 of each of the years 2015 to 2026 (inclusive) such that each of the first nine installments will constitute 2% of the principal of the total par value of the bonds (Series C), the tenth payment will constitute 17% of the principal of the total par value of bonds (Series C); and each of the last two installments will constitute 32.5% of the principal of the total par value of bonds (Series C); the first principal payment will be on July 20, Dates of paying interest Payable on July 14 and January 14 of each of the years 2011 to 2020 (inclusive). Payable on December 31 and June 30 of each of the years 2013 to 2024 (inclusive) effective December 31, The last interest installment will be paid on December 31, Payable on January 20 and July 20 of each of the years 2015 to 2026 (inclusive) effective January 20, The last interest installment will be paid on July 20,

40 Linkage base (principal and interest) Linked (principal and interest) to the consumers' price index published on February 15, 2011 in respect of January Linked (principal and interest) to the consumers' price index published on May 15, 2013 in respect of April Linked (principal and interest) to the consumers' price index published on July 15, 2014 in respect of June Are they convertible? No No No Company's right to perform early redemption or forced conversion The Company may (but is not obligated to), at any time and at its sole discretion, make an early redemption of some or all of the bonds (Series A), as it chooses, until the date of the final repayment of the bonds (Series A), everything according to the decisions of the Company's Board of Directors. For further details, please see Section of the shelf prospectus. The Company may (but is not obligated to), at any time and at its sole discretion, make an early redemption of some or all of the bonds (Series B), as it chooses, until the date of the final repayment of the bonds (Series B), everything according to the decisions of the Company's Board of Directors. For further details, please see Section of the shelf prospectus. The Company may (but is not obligated to), at any time and at its sole discretion, make an early redemption of some or all of the bonds (Series C), as it chooses, until the date of the final repayment of the bonds (Series C), everything according to the decisions of the Company's Board of Directors. For further details, please see Section of the shelf prospectus. Was a guarantee provided for the payment of the Company's liabilities under the deed of trust? No No No 40

41 2) Details on the trustee Bonds (Series A) (A) Name of trust company: Reznik Paz Nevo Trust Ltd. Name of person responsible for the series of bond certificates in the trust (B) company: Yosi Reznik, CPA Tel: Fax: (C) (D) Bonds (Series B) Contact details: Mailing address for documents: 14 Yad Harutzim Street, Tel- Aviv (A) Name of trust company: Reznik Paz Nevo Trust Ltd. Name of person responsible for the series of bond certificates in the trust (B) company: Yosi Reznik, CPA Tel: Fax: (C) (D) Contact details: Mailing address for documents: 14 Yad Harutzim Street, Tel- Aviv Bonds (Series C) (A) Name of trust company: Reznik Paz Nevo Trust Ltd. Name of person responsible for the series of bond certificates in the trust (B) company: Yosi Reznik, CPA Tel: Fax: (C) (D) Contact details: Mailing address for documents: 14 Yad Harutzim Street, Tel- Aviv 41

42 3) Rating Bond series Name of rating company A Maalot Bonds' rating Issuer's rating Rating of the issuer and bonds on the date of initial issue (March 2011) Rating of the issuer and bonds April 2012 Rating of the issuer and bonds on the date of expanding the series June 2012 Rating of the issuer and bonds on the date of expanding the series November 2012 Rating of the issuer and bonds April 2013 Rating of the issuer and bonds June 2014 A3 (Midroog) 51 ila ila ila ila+ ila+ ila, stable ila, stable ila, stable ila+, stable ila+, stable July 2015 ila+ ila+, stable March 2016 ilaa- ilaa-, stable Rating of the issuer and bonds as of the date of the report ilaa- ilaa-, stable 51 On May 7, 2012, the Company notified Midroog on the discontinuance of the agreement between the Company and Midroog for rating the bonds (series A) of the Company and on May 13, 2012, Midroog announced the discontinuance of the rating activity of the Company's bond series A 42

43 Bond series Name of rating company B Maalot Rating of the issuer and bonds on the date of initial issue (May 2013) Rating of the issuer and bonds on the date of expanding the series February 2014 Rating of the issuer and bonds June 2014 Bonds' rating ila+ ila+ ila+ Issuer's rating ila+, stable ila+, stable ila+, stable July 2015 ila+ ila+, stable March 2016 ilaa- ilaa-, stable Rating of the issuer and bonds as of the date of the report ilaa- ilaa-, stable Bond series Name of rating company Rating of the issuer and bonds on the date of initial issue (July 2014) C Maalot Bonds' rating ila+ Issuer's rating ila+, stable July 2015 ila+ ila+, stable March 2016 ilaa- ilaa-, stable Rating of the issuer and bonds on the date of expanding the series April 2016 Rating of the issuer and bonds as of the date of the report ilaa- ilaa- ilaa-, stable ilaa-, stable For details regarding Maalot's announcement of March 6, 2017, see section 7 (b) of Part C ("Corporate Governance Aspects") of this report, and also see the immediate report dated March 6, 2017 (reference no ) to which Maalot announcement is attached, the information contained therein is brought in this report by way of reference. 43

44 4) Compliance with terms and liabilities according to the deed of trust To the Company's best knowledge, as of the report date and over the reported period, the Company has complied with all the terms and liabilities according to the deeds of trust, including as at the end of the Report Period the Company complied with all the financial covenants prescribed in the deed of trust of February 24, 2011 between the Company and Reznik Paz Nevo Trust Ltd, the trustee for the bond holders (series A) and in the deed of trust dated May 9, 2013 between the Company and Reznik Paz Nevo Trust Ltd, the trustee for the bond holders (series B) and in the deed of trust for bond holders dated July 14, 2014 (Series C) (the trustee and the deed of trust, respectively) including the following financial covenants: A. The ratio of the Company's equity at the end of each quarter to its financial debt, net, according to solo reports for that date, will not be under 187.5% 52 : The Company's equity, which is attributed to the majority shareholders as at the end of the Report Period, namely, as at December 31, 2016, is EUR 419,173 thousand. The financial debt, net, according to solo reports of the Company as at the same date is EUR 141,223 thousand. Therefore, the ratio of the Company's equity to the financial debt, net, according to solo reports as at the end of the Report Period, namely, as at December 31, 2016, is approximately 297%. B. The ratio of the charged share value to net debt will not be less than the basic ratio (as defined hereunder). With respect to the bond holders (Series A): "The Basic Ratio": the ratio of the charged share value to a net debt of 175%. "Net debt": the balance of the bonds' principal (series A) (plus accumulated linkage differentials and interest that were not yet paid). The number of charged shares of Brack Capital German Properties B.V., a subsidiary (100%) of the Company (hereinafter: "BGP") as of December 31, ,804. The total issued share capital of BGP as of December 31, 2016 and as of the signing date of the report 1,978,261. The rate of charged shares out of the issued capital share of BGP as of December 31, %. BGP's equity which is attributed to its shareholders, as appears in the Company's financial statements as of December 31, 2016 EUR 557,960 thousand. The EUR/NIS representative exchange rate known, as of the signing date of the report as published by the Bank of Israel - NIS The value of the charged shares NIS 1,046,576 thousand. Net debt NIS 243,158 thousand. Accordingly,the ratio between the charged share value to net debt, as at the end of the Report Period, is approximately 430% and therefore, the Company meets this ratio. 52 The requirement to meet this ratio is relevant only to the bondholders of series A and B 44

45 With respect to the bond holders (Series B): "The Basic Ratio": the ratio of the charged share value to a net debt of 175%. "Net debt": the ratio of the bonds' principal (series B) (plus accumulated linkage differentials and interest that were not yet paid). The number of charged shares of BGP as of December 31, ,027. The total issued share capital of BGP as of December 31, 2016 and the signing date of the report 1,978,261. The rate of charged shares out of the issued capital share of BGP as of December 31, %. BGP's equity which is attributed to its shareholders, as appears in the Company's financial statements as of December 31, 2016 EUR 557,960 thousand. The EUR/NIS representative exchange rate known, as of the signing date of the report, as published by the Bank of Israel NIS The value of the charged shares NIS 709,720 thousand. Net debt NIS 210,000 thousand. Accordingly,the ratio between the charged share value to net debt, as at the end of the Report Period, is approximately 338% and therefore, the Company meets this ratio as well. With respect to the bond holders (Series C): "The Basic Ratio": the ratio of the charged share value to a net debt of 175%. "Net debt": the ratio of the bonds' principal (series C) (plus accumulated linkage differentials and interest that were not yet paid). The number of charged shares of BGP as of December 31, ,430. The total issued share capital of BGP as of December 31, 2016 and the signing date of the report 1,978,261. The rate of charged shares out of the issued capital share of BGP as of December 31, %. BGP's equity which is attributed to its shareholders, as appears in the Company's financial statements as of December 31, 2016 EUR 557,960 thousand. The EUR/NIS representative exchange rate known, as of the signing date of the report, as published by the Bank of Israel - NIS The value of the charged shares NIS 437,380 thousand. Net debt NIS 159,218 thousand. Accordingly,the ratio between the charged share value to net debt, as at the end of the Report Period, is approximately 275% and therefore, the Company meets this ratio as well. 45

46 In addition, the Company committed under the financial covenants set forth in the deeds of trust that: a. Minimum equity - pursuant to the series A deed of trust -the equity attributed to the majority shareholders shall not fall below EUR 80 million and pursuant to the series B and C deeds of trust- equity shall not fall below EUR 150 million and EUR 190 million, respectively, whereas as of the report date, the equity attributed to the majority shareholders is EUR million. b. Restrictions on dividend distribution - under series A deed of trust- not to distribute dividends and/or distribute equity to its shareholders and/or repurchase its treasury shares or of its convertible securities if it will result in equity attributed to the majority shareholders that is lower than EUR 80 million, pursuant to the series A deed of trust. As of the report date, the equity attributed to the majority shareholders is EUR million. Under series B and C deeds of trust - not to distribute dividends and/or distribute equity to its shareholders and/or repurchase its treasury shares or its convertible securities if it will result in equity attributed to the majority shareholders that is lower than EUR 160 million and EUR 200 million, respectively, and/or the debt ratio to CAP (as defined below) that will exceed 70%. As of the report date, the equity attributed to the majority shareholders is EUR million and the debt ratio to CAP is 55.24% (as detailed below). c. Maximum CAP ratio - the ratio between the net financial liabilities and its equity in addition to non controlling interests and other financial liabilities (CAP) shall not exceed 90% pursuant to series A deed of trust and shall not exceed 75% pursuant to Series B and C deeds of trust. The Company's net financial debt (consolidated) 53 as of the report date, amounted to EUR 641,941 thousand (consists of financial liabilities according to the Solo reports of EUR 147,919 thousand in addition to the net financial liabilities of the subsidiaries of EUR 591,321 thousand minus cash and cash equivalents and deposits of EUR 90,299 thousand minus debt in respect of inventory of apartments under construction of EUR 7,000 thousand); 53 Net consolidated financial debt " total liabilities of the company: a) for repayment of bank loans (recourse) (namely loans conferring the right of recourse to the Company); b) for repayment of bonds (series A), bonds (series B) and other bonds from series C to F and convertible bonds of the series G K to be issued, as far as the Company will issue according to the shelf prospectus; c) and for the repayment of any other loan, the maturity dates of which (principal and/or interest) are due prior to the final repayment of the bonds (series A), bonds (series B) or bonds (series C to F) or bonds (series G to K) as far as issued and existing in the cycle; in addition d) the entire debt balance of BGP and BGP subsidiaries to a third party that is secured by a charge on any asset of BGP and/or BGP's subsidiaries assets (but not more than the value of the charged asset) and all less: e) cash and cash equivalents and deposits; and f) the debt in respect of inventory of apartments under construction. 46

47 The CAP 54 amounted to EUR 1,162,004 thousand (according to equity that includes non controlling interests of EUR 520,063 thousand in addition to net financial debt of EUR 641,941 thousand; it should be noted that the value of sections b (deferred loans) and c (negative equity) for defining CAP as specified in the deed of bonds is Zero. Therefore, this ratio is 55.24%, whereas according to the deeds of trust such ratio should be lower than 90% for Series A and lower than 75% for Series B and C. (5) Description of the charged properties for securing the Corporation's undertakings according to the liability certificates The following are details regarding the charges for securing the Company's undertakings pursuant to the terms of the Company's bonds (Series A, Series B and Series C) which are in force pursuant to any law and the Company's incorporation instruments, as of the report date and the report signing date: Bonds (Series A) a) Charging BGP shares To secure the liabilities of the Company toward the bond holders (Series A) and the trustee (including the repayment of principal, interest and linkage differences) the Company charged, by first degree charge, in favor of the trustee 943,804 ordinary shares par value of EUR 0.01 of BGP (representing 47.7% of BGP's issued and outstanding share capital). For details on the value of the charged shares in the financial statements of the Company, see the above small section 3(b). b) Negative pledge As long as the bonds (Series A) are within the cycle (namely, as long as the bonds (Series A) have not been fully repaid or settled in any way, including by way of self acquisition and/or early redemption), the Company undertakes that it shall not charge, mortgage, assign by way of charging, or provide as another security of any kind or as another security (hereinafter together in this sub-section only: "the Security") to any of its charges or to the charges of others, in favor of any third party, BGP shares, if after creating the Security, the Company is left with a number of BGP shares which are free and clean, in an amount constituting 10% or less than the total number of the charged shares (for securing the bonds (Series A), as shall be from time to time. Whenever the Company provides a security as stated in this Section above, the Company will forward a confirmation to the trustee to the effect that it meets said condition, prior to providing the security Total equity and debt (CAP) "the net consolidated financial debt" in addition to all the items below: a) the Company's equity (including minority interests) as stated in the audited or reviewed consolidated statements of the Company; b) the Company's deferred loan balance (as defined below); and c) impairments recorded in the consolidated financial statements (as far as recorded) in respect of the charged assets to secure the loans in the amount of the difference between the recourse and the loan carrying value in the Company's consolidated financial statements. "Deferred loans" any loan the Company received from any party, which under its terms is subordinate in the repayment level to bonds (series A), bonds (series B), bonds of series C - F, or convertible bonds series G K to be issued, as far as it will issue, according to the shelf prospectus and which cannot be repaid (principal and/or interest) throughout the term of the aforementioned bonds. 55 It is indicated that as of December 31, 2016, all BGP shares are charged in favor of the trustee for the bond holders (Series A C) and therefore such condition does not appear to have been met. Nevertheless, it is clarified and stressed that the number of BGP charged shares in favor of the trustee for the bond holders (Series A) is greater by 146% than the minimum number of BGP shares the Company is required to charge to the trustee according to the basic ratio and the ratio of the charged shares to the net debt exceeds 127% the ratio required to release the collaterals (as defined in the Series A deed of trust) and therefore the non fulfillment of the above condition will not harm the holders. 47

48 For details regarding the conditions set forth in the deed of trust for changing, releasing, replacing or cancelling said liens, see Sections of the shelf prospectus. For details regarding the limitations on issuing additional liability certificates, see Section of the shelf prospectus. As to the bonds (Series A), the Company warrants and represents, inter alia, that as long as there is a surplus of bonds (Series A) in cycle, the Company will not take credit which shall be secured by charging the shares of any of the companies held by BGP or the assets held by such companies. Without derogating from the foregoing, the creation of the charge on the charged shares will not limit any action of BGP or corporations it holds, including a limitation on charging shares which are held by BGP in other corporations for securing non-recourse credit to BGP and/or put a limitation on charging assets by corporations held by BGP for securing non-recourse credit to BGP. For further details regarding the Company's liabilities towards the holders of bonds (Series A), see, inter alia, Section (D) of the shelf prospectus. Bonds (Series B) a) Charging BGP shares To secure the liabilities of the Company toward the bond holders (Series B) and the trustee (including the repayment of principal, interest and linkage differences) the Company charged, by first degree charge, in favor of the trustee 640,027 ordinary shares par value of EUR 0.01 of BGP (representing 32.4% of BGP's issued and outstanding share capital). For details on the value of the charged shares in the financial statements of the Company, see the above small section 3(b). For additional information regarding said charge see section 5.6 of the modification and addendum number 1 dated May 9, 2013 of the deed of trust dated May 23, 2012, which was attached as an appendix to the shelf offering report of the Company dated May 19, 2013 (Series B deed of trust). b) Negative pledge As long as the bonds (Series B) are within the cycle (namely, as long as the bonds (Series B) have not been fully repaid or settled in any way, including by way of self acquisition and/or early redemption), the Company undertakes that it shall not charge, mortgage, assign by way of charging, or provide as another security of any kind or as another security (hereinafter together in this sub-section only: "the Security") to any of its charges or to the charges of others, in favor of any third party, BGP shares, if after creating the Security, the Company is left with a number of BGP shares which are free and clean from any claim/demand and/or a right of any third party, in an amount constituting 10% or less than the total number of the charged shares to the trustee (for securing the bonds (Series B) and BGP shares charged to the trustee for bonds (Series A) to secure the bonds (Series A), as shall be from time to time. It is stressed that this small section will not apply as long as the ratio of charged shares to the net debt will be equal to the ratio required for releasing collaterals (as defined in the Series B deed of trust). For details regarding the conditions set forth in the deed of trust for changing, releasing, replacing or cancelling said liens, see Section 5.5 of the Series B deed of trust. For details regarding the limitations on issuing additional liability certificates, see Section 4 of the Series B deed of trust. 48

49 As to the bonds (Series B), the Company warrants and represents, inter alia, that as long as there is a surplus of bonds (Series B) in cycle, the Company will not take credit which shall be secured by charging the shares of any of the companies held by BGP or the assets held by such companies. It was clarified that the creation of the charge on the charged shares will not limit any action of BGP or corporations it holds, including a limitation on charging shares which are held by BGP in other corporations for securing non-recourse credit to BGP and/or put a limitation on charging assets by corporations held by BGP for securing non-recourse credit to BGP. For further details regarding the Company's liabilities towards the holders of bonds (Series B), see inter alia, Section 8 of the Series B deed of trust. Bonds (Series C) c) Charging BGP shares To secure the liabilities of the Company toward the bond holders and the trustee (including the repayment of principal, interest and linkage differences) the Company charged, by first degree charge, in favor of the trustee 394,430 ordinary shares par value of EUR 0.01 of BGP (representing 19.9% of BGP's issued and outstanding share capital). For details on the value of the charged shares in the financial statements of the Company, see the above small section 3(b). For additional information regarding said charge see section 5.6 of the modification and addendum number 2 dated July 14, 2014 of the deed of trust dated May 23, 2012, which was attached as an appendix to the shelf offering report of the Company dated July 20, 2014 (Series C deed of trust). Negative pledge As long as the bonds (Series C) are within the cycle (namely, as long as the bonds (Series C) have not been fully repaid or settled in any way, including by way of self acquisition and/or early redemption), the Company undertakes that it shall not charge, mortgage, assign by way of charging, or provide as another security of any kind or as another security (hereinafter together in this sub-section only: "the Security") to any of its charges or to the charges of others, in favor of any third party, BGP shares, if after creating the Security, the Company is left with a number of BGP shares which are free and clean from any claim/demand and/or a right of any third party, in an amount constituting 10% or less than the total number of the charged shares to the trustee for securing the bonds (Series C) BGP shares charged to the trustee for securing the bonds (Series B) and BGP shares for securing the bonds( Series A), as shall be from time to time. It is stressed that this small section will not apply as long as the ratio of charged shares to the net debt will be equal to the ratio required for releasing collaterals. For details regarding the conditions set forth in the deed of trust for changing, releasing, replacing or cancelling said liens, see Section 5.5 of the Series C deed of trust. For details regarding limitations on issuing additional liability certificates, see Section 4 of the Series C deed of trust. As to the bonds (Series C), the Company warrants and represents, inter alia, that as long as there is a surplus of bonds (Series C) in cycle, the Company will not take credit which shall be secured by charging the shares of any of the companies held by BGP or the assets held by such companies. 49

50 It was clarified that the creation of the charge on the charged shares will not limit any action of BGP or corporations it holds, including a limitation on charging shares which are held by BGP in other corporations for securing non-recourse credit to BGP and/or put a limitation on charging assets by corporations held by BGP for securing non-recourse credit to BGP. For further details regarding the Company's liabilities towards the holders of bonds (Series C), see, inter alia, Section 8 of the Series C deed of trust. 5) Attaching the financial statements of BGP According to legal position No of the Securities Authority" ("due diligence findings with respect to disclosure regarding securities and/or liens granted by reporting corporations to secure the repayment of liability certificates) in the case of pledging the investee's shares,the corporation is required to attach audited/reviewed financial statements, as the case may be, of the investee on a quarterly basis,until the date of full repayment of the liability certificates. However, as of the date of the Periodic Report, the only differences between the consolidated financial statements of the Company and the financial statements of BGP, the 100% investee company whose shares are pledged to the bondholders (as described in section 5 above, the "pledged investee company ") is the amount of cash held by the Company itself on the part of the assets and the bonds issued by the Company on the liabilities' part (as reflected in the Company's solo reports), and as a result, the consolidated financial statements of the Company are virtually identical to those of the pledged investee company (excluding cash held by the Company and the bonds it issued), and therefore the Company does not attach separate financial statements of the pledged investee company. The following are data as of December 31, 2016 and December 31, 2015 with respect to the assets and liabilities of the Group which are not included in the consolidated statements of the pledged investee company compared to the assets and liabilities of the pledged investee and the total consolidated balance sheet: Data as of December 31, 2016 (EUR in thousands) The Company Consolidated Assets/liabilities In the pledged investee company Assets/liabilities In unpledged companies Total assets 1,373,768 1,362, ,160 Current assets 150, , 872 * 9,014 Noncurrent assets 1,222,882 1, 220,736 2,146 Total liabilities 853, , ,947 Current liabilities 83,713 63,936 ** 19,778 Noncurrent liabilities 769, ,823 *** 130,169 Non- controlling interests 100, ,890 0 Total equity 419, ,960 ) 138,787( Rate of assets out of the total assets in the 100% 99% 1% balance sheet Rate of liabilities out of the total liabilities in 100% 82% 18% the balance sheet Rate of equity out of the total equity in the balance sheet 100% 133% )33%( *) cash and liquid balances held by the Company (solo) **) current maturity of principal of bonds (Series A C) issued by the Company and interest payable for said bonds ***) balance of bonds principal (Series A C) issued by the Company 50

51 Data as of December 31, 2015 (EUR in thousands) The Company Consolidated Assets/liabilities In the pledged company Assets/liabilities In unpledged companies Total assets 1,281,068 1,248,197 32,871 Current assets 158, ,714 32,871* Noncurrent assets 1,122,483 1,122,483 0 Total liabilities 826, , ,798 Current liabilities 144, ,045 18,722** Noncurrent liabilities 682, , ,076*** Non- controlling interests 108, ,577 0 Total equity 345, ,450 )112,927( Rate of assets out of the total assets in the balance 100% 97% 3% sheet Rate of liabilities out of the total liabilities in the 100% 82% 18% balance sheet Rate of equity out of the total equity in the balance sheet 100% 133% )33%( *) cash and liquid balances held by the Company (solo) **) current maturity of principal of bonds (Series A C) issued by the Company and interest payable for said bonds; ***) balance of bonds principal (Series A C) issued by the Company Names of signatories Position Signature Jan Van Der Meer Chairman of the Board of Directors Ofir Rahamim Co-CEO March 23,

52 CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2016 IN THOUSANDS OF EUROS INDEX Auditors' Report Regarding the Audit of Components of Internal Control over Financial Reporting 2-3 Auditors' Report 4 Consolidated Statements of Financial Position 5-6 Consolidated Statements of Profit or Loss and Other Comprehensive Income 7 Consolidated Statements of Changes in Equity 8-9 Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Appendix to Consolidated Financial Statements Appendix of holdings Page

53 עמית, חלפון AUDITORS' REPORT To the Shareholders of BRACK CAPITAL PROPERTIES NV. Regarding the Audit of Components of Internal Control over Financial Reporting Pursuant to Section9 b(c )to the Israeli Securities Regulations( Periodic and Immediate Reports,) 1970 We have audited the components of internal control over financial reporting of Brack Capital Properties NV ("the Company") and its subsidiaries (collectively, "the Company") as of December 31, Control components were determined as explained in the following paragraph. The Company's board of directors and management are responsible for maintaining effective internal control over financial reporting, and for their assessment of the effectiveness of the components of internal control over financial reporting included in the accompanying periodic report for said date. Our responsibility is to express an opinion on the Company's components of internal control over financial reporting based on our audit. The components of internal control over financial reporting audited by us were determined in conformity with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel, "Audit of Components of Internal Control over Financial Reporting" ("Auditing Standard 104"). These components consist of: (1) entity level controls, including financial reporting preparation and close process controls and information technology general controls ("ITGCs"); (2) controls over the investment property process; (3) controls over the loans and derivatives process; (4) controls over the process of inventory of buildings under construction (5) Controls over the revenue process. (Collectively, "the audited control components"). We conducted our audit in accordance with Auditing Standard 104. That Standard requires that we plan and perform the audit to identify the audited control components and obtain reasonable assurance about whether these control components have been effectively maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, identifying the audited control components, assessing the risk that a material weakness exists regarding the audited control components and testing and evaluating the design and operating effectiveness of the audited control components based on the assessed risk. Our audit of these control components also included performing such other procedures as we considered necessary in the circumstances. Our audit only addressed the audited control components, as opposed to internal control over all the material processes in connection with financial reporting and therefore, our opinion addresses solely the audited control components. Moreover, our audit did not address any reciprocal effects between the audited control components and unaudited ones and accordingly, our opinion does not take into account any such possible effects. We believe that our audit provides a reasonable basis for our opinion within the context described above. Because of its inherent limitations, internal control over financial reporting as a whole, and specifically the components therein, may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, based on our audit, the Company effectively maintained, in all material respects, the audited control components as of December 31,

54 We have also audited, in accordance with generally accepted auditing standards in Israel, the consolidated financial statements of the Company as of December 31, 2016 and 2015 and each of the years ended December 31, 2016 and our report dated March 23, 2017 expressed an unqualified opinion thereon. Amit, Halfon Ramat Gan, CPA March 23, רח' אבא הילל סילבר 16, רמת-גן טל: פקס: Amit, Halfon is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms

55 עמית, חלפון AUDITORS' REPORT To the Shareholders of BRACK CAPITAL PROPERTIES NV We have audited the accompanying consolidated statements of financial position of Brack Capital Properties NV ("the Company") as of December 31, 2016 and 2015 and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, These financial statements are the responsibility of the Company's board of directors and management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel, including those prescribed by the Auditor's Regulations (Auditor's Mode of Performance), Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the board of directors and management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2016 and 2015, and the results of their operations, changes in their equity and cash flows for each of the three years in the period ended December 31, 2016, in conformity with International Financial Reporting Standards ("IFRS") and with the provisions of the Israeli Securities Regulations (Annual Financial Statements), We have also conducted an audit in accordance with Auditing Standard 104 of the Institute of Certified Public Accountants in Israel "Audit of Components of Internal Control over Financial Reporting" internal control components over the financial reporting of the Company as of December 31, 2016 and our report dated March 23, 2017 included an unqualified opinion on the existence of those components effectively. Amit, Halfon Ramat Gan, CPA March 23, רח' אבא הילל סילבר 16, רמת-גן טל: פקס: office@ahcpa.co.il Amit, Halfon is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms

56 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION BRACK CAPITAL PROPERTIES NV ASSETS Note December 31, Euros in thousands CURRENT ASSETS: Cash and cash equivalents 3 89,278 55,820 Balances receivable from banks 3 2,221 24,969 Restricted deposits and other receivables 4 10,088 12,031 Tenants and trade receivables, net 5 3,545 5, 677 Other financial assets Inventory of buildings under construction 6 45,754 59, , , 585 NON-CURRENT ASSETS: Investments in companies accounted at equity 7 8,318 5,005 Inventory of real estate 6 13,820 25,591 Investment property real estate rights 8 101, ,038 Investment property income generating assets 8 1,089, ,243 Restricted deposits for investments in assets 2, Other accounts receivable and other financial assets 9,13 2,414 1,481 Fixed assets Deferred taxes 16 3, 608 8, 585 1,222,882 1,122, 483 1,373,768 1,281, 068 The accompanying notes are an integral part of the consolidated financial statements

57 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION BRACK CAPITAL PROPERTIES NV LIABILITIES AND EQUITY Note December 31, Euros in thousands CURRENT LIABILITIES: Current maturities of loans from banks 11 16,164 68,491 Current maturities of debentures 11 17,750 16,623 Loans for financing inventory of buildings under construction 11 7,000 3,500 Current maturities of other financial liabilities Accounts payable 10 26, ,073 Advances from apartment purchasers 6 16,073 35,687 83, ,767 NON-CURRENT LIABILITIES: Loans from banks and others , ,887 Debentures , ,076 Other liabilities 12 3,133 3,148 Other financial liabilities Deferred taxes 16 68, ,512 Contingent liabilities, commitments and liens , ,201 EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY: 18 Share capital Share premium 69,221 74,689 Treasury shares ) 883( )951( Other capital reserves 6,614 3,841 Statutory capital reserve 233, ,878 Retained earnings 110, Total equity attributable to equity holders of the company 419, ,523 Non-controlling interests 100, ,577 Total equity 520, ,100 1,373,768 1,281,068 The accompanying notes are an integral part of the consolidated financial statements. March 23, 2017 Date of approval of the financial statements Ian Van Der Mir Chairman of the Board of Directors Ofir Rahamim Joint CEO Guy Priel CFO - 6 -

58 CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Note Year ended December 31, Euros in thousands (except net earnings per share data) Revenues from rental of properties 72,111 66,415 60,512 Revenues from property management and others 25,539 26,277 22,119 Property management expenses ) 25,064( ) 24,072( )21,401( Cost of maintenance of rental properties 19a ) 8,803( ) 8,105( )6,331( Rental and management revenues, net 63,783 60,515 54,899 Revenues from sale of apartments 6 73,935 68,372 70,933 Cost of sale of apartments 6 ) 58,537( ) 54,637( )58,499( Gain from sale of apartments 15,398 13,735 12,434 General and administrative expenses 19b ) 12,594( ) 11,090( )9,325( General and administrative expenses relating to inventory of buildings under construction and real estate inventory ) 2,222( ) 1,799( )2,082( Selling and marketing expenses ) 422( ) 242( )367( Cost of share based payment (general and administrative) ) 1,227( ) 1,525( )1,554( Operating profit before change in value of investment property 62,716 59,594 54,005 Appreciation of investment property, net 8 80,459 44,256 23,304 Operating income 143, ,850 77,309 Finance income 19c Finance expenses net of exchange rate effect, CPI and currency hedging transactions 19d ) 20,716( ) 21,162( )20,520( Exchange rate effect, CPI and currency hedging transactions, net 19d,e(2) ) 3,399( 3,424 10,353 Change in value of loans, interest-swap transactions and refinance costs, net 19f ) 3,793( 6,023 )13,949( Income before taxes on income 115,292 92,217 53,484 Taxes on income 16e ) 26,586( ) 14,725( )6,029( Net income 88, ,492 47,455 Other comprehensive income: Total comprehensive income 88, ,492 47,455 Net and comprehensive income attributable to: Equity holders of the Company 76,276 63,439 37,954 Non-controlling interests 12,430 14,053 9,501 Net earnings per share attributable to equity holders of the Company (in Euro): 20 88,706 77,492 47,455 Basic net earnings Diluted net earnings The accompanying notes are an integral part of the consolidated financial statements

59 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY BRACK CAPITAL PROPERTIES NV EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital Share premium Treasury shares Other capital reserves Statutory capital reserve (1) Retained earnings Total Euros in thousands Noncontrolling interests Total equity Balance as of January 1, ,025 ) 951( 3, , ,323 98, ,717 Total net income and comprehensive income ,954 37,954 9,501 47,455 Total comprehensive income ,954 37,954 9,501 47,455 Classification in accordance with Dutch law ,954 ) 37,954( Exercise of options into shares 2 3,782 - ) 1,032( - - 2, 752-2,752 Cost of share-based payment , ,554-1,554 Adjustment of capital reserve in respect of transactions with controlling shareholder Receipt of equity loans from non-controlling interests ,908 2,908 Dividend to non-controlling interests ) 11,218( )11,218( Balance as of December 31, ,807 ) 951( 4, , ,596 99, ,181 Total net income and comprehensive income ,439 63,439 14,053 77,492 Total comprehensive income ,439 63,439 14,053 77,492 Classification in accordance with Dutch law ,439 ) 63,439( Exercise of options into shares 2 2,882 - ) 2,167( Cost of share-based payment , ,525-1,525 Adjustment of capital reserve in respect of transactions with controlling shareholder Purchase of rights from non-controlling interests ) 265( )198( Dividend to non-controlling interests ) 4,796( )4,796( Balance as of December 31, ,689 ) 951( 3, , , , ,100 (1) See Note 18f. The accompanying notes are an integral part of the consolidated financial statements

60 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY BRACK CAPITAL PROPERTIES NV EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY Share capital Share premium Treasury shares Other capital reserves Statutory capital reserve (1) Retained earnings Total Euros in thousands Noncontrolling interests Total equity Balance as of January 1, ,689 ) 951( 3, , , , ,100 Total net income and comprehensive income ,276 76,276 12,430 88,706 Total comprehensive income ,276 76,276 12,430 88,706 Classification in accordance with Dutch law ) 34,415( 34, Exercise of options into shares ) 466( Cost of share-based payment , , 227-1, 227 Adjustment of capital reserve in respect of transactions with controlling shareholder Purchase of rights from non-controlling interests , ,932 ) 16,920( )14,988( Increase of share capital (2) 6,049 ) 6,049( Capital distribution to the Company's shareholders and adjustment in respect of treasury shares (2) ) 6,049( ) 6,012( - )6,012( Distribution to non-controlling interests ) 3,197( )3,197( Balance as of December 31, ,221 ) 883( 6, , , , , ,063 (1) See Note 18f. (2) See Note 18g. The accompanying notes are an integral part of the consolidated financial statements

61 CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from operating activities: Year ended December 31, Euros in thousands Net income 88,945 77,492 47,455 Adjustments to reconcile net income to net cash provided by operating activities: Adjustments to profit and loss: Depreciation Finance expenses, net 25,121 14,315 23,586 Appreciation of investment property, net ) 80,459( ) 44,256( )23,304( Deferred taxes, net 25, ,478 5, 838 Cost of share-based payment 1, 227 1,525 1,554 Adjustment of capital reserve in respect of transactions with controlling shareholder Adjustment of capital reserve in respect of transactions with noncontrolling interests ) 27,806( ) 13,482( 7,830 Cash flows from operating activities before changes in asset and liability items 60, ,011 55,285 Changes in operating asset and liability items: Decrease (increase) in tenants, restricted deposits and other receivables and related parties 1,772 3,687 )5,647( Increase (decrease) in accounts payable 4, ,926 5,849 3,911 )2,721( Net cash provided by operating activities before decrease (increase) in inventory of real estate and inventory of buildings under construction and advances from apartment purchasers 66,749 67,921 52,564 Increase (decrease) in advances from apartment purchasers ) 19,614( ) 7,759( )96( Decrease (increase) in inventory of buildings under construction 12,180 19,948 17,774 Decrease (increase) in inventory of real estate 11,771 ) 62( 242 Net cash provided by operating activities 71, ,048 70,484 The accompanying notes are an integral part of the consolidated financial statements

62 CONSOLIDATED STATEMENTS OF CASH FLOWS Cash flows from investing activities: Year ended December 31, Euros in thousands Investment in fixed assets ) 529( ) 104( )314( Investment in investment property ) 106,420( ) 46,960( )132,022( Investments in companies measured at equity ) 3,313( - - Proceeds from sale of investment property 10, Proceeds from sale of subsidiaries, net (a) 10, Repayment of loans to employees, net - 2,929 2,200 Increase in long term accounts receivable (84) - - Withdrawal (placement) of restricted deposits, prepaid transaction costs and withdrawal (placement) of long-term deposits in banks, net 1,226 ) 1,328( )3,625( Interest received and sale of derivatives 25, Net cash used in investing activities ) 62,275( ) 45,246( )133,530( Cash flows from financing activities: Interest paid ) 18,567( ) 19,348( )19,422( Exercise of options ,752 Distribution to non-controlling interests ) 3,197( ) 4,796( )11,218( Receipt of equity loans from non-controlling interests - - 2,908 Receipt of long-term loans, net 93,195 17, ,105 Issuance of debentures, net 14,127-36,972 Repayment of debentures ) 17,117( ) 17,012( )15,057( Repayment of long-term loans ) 22,941( ) 23,095( )142,331( Purchase of rights from non-controlling interests ) 14,988( ) 198( - Capital distribution to the Company's shareholders ) 6,012( - - Repayment of SWAP transactions, transaction costs and sale of derivatives, net - 7,141 )3,418( Net cash provided by (used in) financing activities 24,647 ) 39,187( 89,291 Change in cash and cash equivalents 33,458 ) 4,385( 26,245 Balance of cash and cash equivalents at the beginning of the year 55,820 60,205 33,960 Balance of cash and cash equivalents at the end of the year 89,278 55,820 60,205 The accompanying notes are an integral part of the consolidated financial statements

63 CONSOLIDATED STATEMENTS OF CASH FLOWS Year ended December 31, Euros in thousands (a) Proceeds from sale of previously consolidated subsidiaries : Assets and liabilities of consolidated subsidiaries as of date of sale: 61, Investment property Working capital (excluding cash and cash equivalents) 204 Cash and cash equivalents ) 53,697( - - Loans from banks, net 1, Gain from sale of subsidiaries Deferred taxes, net 10, The accompanying notes are an integral part of the consolidated financial statements

64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1:- GENERAL a. General description of the Company and its activity Brack Capital Properties NV ("the Company") was incorporated in June 2006 and is a real estate corporation residing in the Netherlands, which is engaged via investees in the acquisition and management of investment properties in Germany, mainly in the area of income-generating commercial and income-generating residential real estate. The Company is also engaged in real estate betterment and development of residential complex in Düsseldorf, Germany. Regarding the Company's operating segments, see Note 21. In 2010, the Company issued shares pursuant to an initial public offering on the Israeli stock exchange b. Definitions In these financial statements - The Company - Brack Capital Properties NV. The Ultimate Parent Company - Brack Capital Real Estate Investments NV. The Group - Brack Capital Properties NV and its investees Subsidiaries - Companies controlled by the Company (as defined in the IFRS 10) and the accounts of which are consolidated with those of the Company. Associates - Companies over which the Company has significant influence and which are not subsidiaries and for which the Company's investment therein is included in the Company's consolidated financial statements at equity. Jointly controlled entities - Companies owned by various entities that have a contractual arrangement for joint control and the Company's investment therein is included in the consolidated statements of the Company using the equity method. (see Note 2d) Investees - Subsidiaries, jointly controlled entities and associates. Interested parties and controlling shareholder - As defined in the Israeli Securities Regulations (Annual Financial Statements), Related parties - As defined in IAS 24 (revised)

65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES a. Basis of presentation of the financial statements 1. Basis of measurement The Company's financial statements have been compiled based on cost, with the exception of investment property and derivative financial instruments which are measured at fair value through profit or loss. Likewise, the Company occasionally designates loans from banking corporations to fair value through profit or loss. The Company has elected to present its statement of comprehensive income according to the operations attribute method. 2. Preparation format of the financial statements These financial statements have been compiled in accordance with International Financial Reporting Standards ("IFRS"). These standards include: a) International Financial Reporting Standards (IFRS). b) International Accounting Standards (IAS). c) Interpretations issued by the IFRIC and by the SIC. Furthermore, the financial statements have been prepared in accordance with the Israeli Securities Regulations (Annual Financial Statements), Consistent accounting policies The accounting policies applied in the financial statements are consistent with those of all periods presented. b. Significant accounting judgments, estimates and assumptions used in the preparation of the financial statements: 1. In the process of applying the significant accounting policies, the Group has made the following judgments which have the most significant effect on the amounts recognized in the financial statements: - Acquisition of subsidiaries that are not business combinations: According to IFRS 3, at the time of acquisition of subsidiaries and activities, the Company considers whether the acquisition represents a business combination pursuant to IFRS 3. The following criteria which indicate acquisition of a business are considered: large number of assets acquired, the extent to which ancillary services to operate the property are provided and the complexity of the management of the property

66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) 2. Estimates and assumptions The preparation of the financial statements requires management to make estimates and assumptions that have an effect on the application of the accounting policies and on the reported amounts of assets, liabilities, revenues and expenses. These estimates and underlying assumptions are reviewed regularly. Changes in accounting estimates are reported in the period of the change in estimate. The key assumptions made in the financial statements concerning uncertainties at the end of the reporting period and the critical estimates computed by the Group that may result in a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Investment property: Investment property that can be reliably measured is presented at fair value at the end of the reporting period. Changes in their fair value are recognized in profit or loss. Fair value is determined by independent valuation experts using economic valuations that involve valuation techniques and assumptions as to estimates of projected future cash flows from the property and estimate of the suitable discount rate for these cash flows. If applicable, the fair value is determined based on recent real estate transactions with similar characteristics and location of the valued asset. The fair value measurement of investment property requires valuation experts and the Company's management to use certain assumptions regarding rates of return on the Group's assets, future lease prices, occupancy rates, contract renewal terms, the probability of leasing vacant areas, asset operating expenses, the tenants' financial stability and the implications of any investments made for future development purposes in order to assess the future expected cash flows from the assets. Any change in the assumptions used to measure the investment property is liable to affect fair value. Inventories of real estate and apartments under construction: The net realizable value is assessed based on management's evaluation including expectations and estimates as to the amounts expected to be realized from the sale of the project inventory and the construction costs necessary to bring the inventory to a saleable condition. Further details are given in j

67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Deferred tax assets: Deferred tax assets are recognized for unused carryforward tax losses and temporary differences to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. Further details are given in t. Determining the fair value of an unquoted financial asset and financial liability: The fair value of unquoted financial asset and unquoted financial liability in Level 3 of the fair value disclosure hierarchy of IFRS 13 is determined using valuation techniques including projected cash flows discounted at current rates applicable for items with similar terms and risk characteristics. The changes in projected future cash flows and the discount rates estimate considering the inputs of risk evaluation such as liquidity risk, credit risk and volatility may affect the fair value of these assets. Further details are given in l and m. c. Consolidated financial statements: The consolidated financial statements comprise the financial statements of companies that are controlled by the Company (subsidiaries). Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Potential voting rights are considered when assessing whether an entity has control. The consolidation of the financial statements commences on the date on which control is obtained and ends when such control ceases. The financial statements of the Company and of the subsidiaries are prepared as of the same dates and periods. The consolidated financial statements are prepared using uniform accounting policies by all companies in the Group. Significant intragroup balances and transactions and gains or losses resulting from intragroup transactions are eliminated in full in the consolidated financial statements. Non-controlling interests in subsidiaries represent the equity in subsidiaries not attributable, directly or indirectly, to a parent. Non-controlling interests are presented in equity separately from the equity attributable to the equity holders of the Company. Profit or loss and components of other comprehensive income are attributed to the Company and to non-controlling interests

68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) d. Investment in joint arrangements: Joint arrangements are arrangements in which the Company has joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Joint ventures: In joint ventures the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture is accounted for at equity e. Investments accounted for using the equity method: The Group's investments in associates and joint ventures are accounted for using the equity method. Under the equity method, the investment in the associate or in the joint venture is presented at cost with the addition of post-acquisition changes in the Group's share of net assets, including other comprehensive income of the associate or the joint venture. Profits and losses resulting from transactions between the Group and the associate or the joint venture are eliminated to the extent of the interest in the associate or in the joint venture. Goodwill relating to the acquisition of an associate or a joint venture is presented as part of the investment in the associate or the joint venture, measured at cost and not systematically amortized. Goodwill is evaluated for impairment as part of the investment in the associate or in the joint venture as a whole

69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The financial statements of the Company and of the associate or joint venture are prepared as of the same dates and periods. The accounting policies applied in the financial statements of the associate or the joint venture are uniform and consistent with the policies applied in the financial statements of the Group. Upon the acquisition of an associate or a joint venture achieved in stages when the former investment in the acquiree was accounted for pursuant to the provisions of IAS 39, the Group adopts the principles of IFRS 3 regarding business combinations achieved in stages. Consequently, equity interests in the acquiree that had been held by the Group prior to achieving significant influence or joint control are measured at fair value on the acquisition date and are included in the acquisition consideration while recognizing a gain or loss resulting from the fair value measurement. Losses of an associate in amounts which exceed its equity are recognized by the Company to the extent of its investment in the associate plus any losses that the Company may incur as a result of a guarantee or other financial support provided in respect of the associate. For this purpose, the investment includes long-term receivables (such as loans granted) for which settlement is neither planned nor likely to occur in the foreseeable future. The equity method is applied until the loss of significant influence in the associate or loss of joint control in the joint venture or classification as held-for-sale. The Company continues to apply the equity method even in cases where the investment in the associate becomes an investment in a joint venture and vice versa. The Company applies the provisions of IFRS 5 to the investment or a portion of the investment in the associate or the joint venture that is classified as held-for-sale. Any retained interest in this investment which is not classified as held-for-sale continues to be accounted for using the equity method. On the date of loss of significant influence or joint control, the Group measures any remaining investment in the associate or the joint venture at fair value and recognizes in profit or loss the difference between the fair value of any remaining investment plus any proceeds from the sale of the investment in the associate or the joint venture and the carrying amount of the investment on that date. f. Functional currency and presentation currency: 1. The presentation currency of the financial statements is the Euro. The Group determines the functional currency of each Group entity, including companies accounted for at equity

70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) 2. Transactions, assets and liabilities in foreign currency: Transactions denominated in foreign currency are recorded upon initial recognition at the exchange rate at the date of the transaction. After initial recognition, monetary assets and liabilities denominated in foreign currency are translated at each reporting date into the functional currency at the exchange rate at that date. Exchange rate differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currency and measured at cost are translated at the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currency and measured at fair value are translated into the functional currency using the exchange rate prevailing at the date when the fair value was determined. 3. Index-linked monetary items: The Group has debentures that are linked to the Israeli Consumer Price Index ("Israeli CPI"). Monetary assets and liabilities linked to the changes in the Israeli Consumer Price Index ("Israeli CPI") are adjusted at the relevant index at the end of each reporting period according to the terms of the agreement. g. Cash equivalents and balances receivable from banks: Cash equivalents are considered as highly liquid investments, including unrestricted short-term bank deposits with an original maturity of three months or less from the date of acquisition or with a maturity of more than three months, but which are redeemable on demand without penalty and which form part of the Group's cash management. Balances receivable from banks are considered as highly liquid investments including unrestricted bank deposits which form part of the Group's cash management. h. Short-term deposits: Short-term bank deposits are deposits with an original maturity of more than three months from the date of acquisition which do not comply with the definition of cash equivalents. The deposits are presented according to their terms of deposit. i. Allowance for doubtful accounts: The allowance for doubtful accounts is determined in respect of specific debts whose collection, in the opinion of the Company's management, is doubtful. The Company also recognizes a provision for groups of customers that are collectively assessed for impairment based on their credit risk characteristics. Impaired debts are derecognized when they are assessed as uncollectible

71 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) j. Inventories of apartments under construction and inventories of real estate: Cost of inventories of apartments under construction and inventories of real estate comprises identifiable direct costs of land such as taxes, fees and duties and construction costs. The Company also capitalizes borrowing costs as part of the cost of inventories of apartments under construction from the period in which the Company commenced development of the inventories of apartments under construction. Inventories of apartments under construction and inventories of real estate are measured at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business less estimated costs of completion and the estimated selling costs. k. The operating cycle: The Group has two operating cycles. The operating cycle of apartments under construction is three years. The operating cycle of the remaining activities is one year. Accordingly, the assets and liabilities directly attributable to inventory of apartments under construction are classified in the statement of financial position as current assets and liabilities based on the operating cycle. l. Financial instruments: 1. Financial assets: Financial assets within the scope of IAS 39 are initially recognized at fair value plus directly attributable transaction costs, except for investments at fair value through profit or loss in respect of which transaction costs are recorded in profit or loss. a. Financial assets at fair value through profit or loss: The Group has financial assets at fair value through profit or loss comprising financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired principally for the purpose of selling or repurchasing in the near term, if they form part of a portfolio of identified financial instruments that are managed together to earn short-term profits or if they are derivatives not designated as hedging instruments. Gains or losses on investments held for trading are recognized in profit or loss when incurred. Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments

72 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Group assesses whether embedded derivatives are required to be separated from host contracts when the Group first becomes party to the contract. Reassessment only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. b. Loans and receivables: The Group has loans and receivables that are financial assets (non-derivative) with fixed or determinable payments that are not quoted in an active market. After initial recognition, loans are measured based on their terms at cost plus direct transaction costs using the effective interest net of impairment provision. Short-term credits are measured based on their terms, normally at face value. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the systematic amortization process. As for recognition of interest income, see w. 2. Financial liabilities: Financial liabilities are initially recognized at fair value. Loans and other liabilities measured at amortized cost are presented less direct transaction costs. After initial recognition, the accounting treatment of financial liabilities is based on their classification as follows: a. Financial liabilities measured at amortized cost: After initial recognition, loans and other liabilities are measured based on their terms at amortized cost less directly attributable transaction costs using the effective interest method. b. Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include financial liabilities classified as held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. In the event that a financial instrument contains one or more embedded derivatives, the combined instrument can be designated, upon initial recognition, as a financial liability measured at fair value through profit or loss. Derivatives, including separated embedded derivatives, are classified as held for trading unless they are designated as effective hedging instruments

73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Group assesses the existence of an embedded derivative and whether it is required to be separated from a host contract when the Group first becomes party to the contract. Reassessment of the need to separate an embedded derivative only occurs if there is a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required. A liability may be designated upon recognition to profit or loss subject to the terms set forth in IAS 39. c. Offsetting financial instruments: Financial assets and financial liabilities are offset and the net amount is presented in the statement of financial position if there is a legally enforceable right to set off the recognized amounts and there is an intention either to settle on a net basis or to realize the asset and settle the liability simultaneously. The right to set off must be legally enforced not only in the ordinary course of business of the parties to the agreement but also in case of bankruptcy or insolvency. In order for the right to exist, it should not be dependent on a future event or that in certain periods of time it will not apply or that there will be events that will cause its expiration. d. Derecognition of financial instruments: 1. Financial assets: A financial asset is derecognized when the contractual rights to the cash flows from the financial asset expire or the Company has transferred its contractual rights to receive cash flows from the financial asset or assumes an obligation to pay the cash flows in full without material delay to a third party and has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 2. Financial liabilities: A financial liability is derecognized when it is extinguished, that is when the obligation is discharged or cancelled or expires. A financial liability is extinguished when the debtor (the Group) discharges the liability by paying in cash, other financial assets, goods or services; or is legally released from the liability. When an existing financial liability is exchanged with another liability from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is accounted for as an extinguishment of the original liability and the recognition of a new liability. The difference between the carrying amounts of the above liabilities is recognized in profit or loss. If the exchange or modification is not substantial, it is accounted for as a change in the terms of the original liability and no gain or loss is recognized on the exchange

74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) When evaluating whether the change in the terms of an existing liability is substantial, the Company takes into account both quantitative and qualitative considerations. e. Impairment of financial assets: The Group assesses at the end of each reporting period whether there is any objective evidence of impairment of a financial asset or group of financial assets as follows. Financial assets carried at amortized cost: Objective evidence of impairment exists when one or more events that have occurred after initial recognition of the asset have a negative impact on the estimated future cash flows. The amount of the loss recorded in profit or loss is measured as the difference between the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred) discounted at the financial asset's original effective interest rate. If the financial asset has a variable interest rate, the discount rate is the current effective interest rate. In a subsequent period, the amount of the impairment loss is reversed if the recovery of the asset can be related objectively to an event occurring after the impairment was recognized. The amount of the reversal, up to the amount of any previous impairment, is recorded in profit or loss. m. Derivative financial instruments designated as hedges (hedging): n. Leases: The Group enters into contracts for derivative financial instruments such as forward currency contracts (Forward) and interest rate swaps (SWAP) and CAP transactions to hedge risks associated with foreign exchange rates and interest rate fluctuations. Any gains or losses arising from changes in the fair values of derivatives that do not qualify for hedge accounting are recorded immediately in profit or loss. The criteria for classifying leases as finance or operating leases depend on the substance of the agreements and are made at the inception of the lease in accordance with the following principles as set out in IAS

75 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) The Group as lessee: 1. Finance leases: Lease of land under investment property presented at fair value is accounted for as finance where the leased asset at the commencement of the lease term is measured at the lower of the fair value of the leased asset or at the present value of the minimum lease payments. After initial recognition, the leased asset is accounted for according to the accounting policy applicable for this type of asset. 2. Operating leases: Lease agreements are classified as an operating lease if they do not transfer substantially all the risks and benefits incidental to ownership of the leased asset. Lease payments are recognized as an expense in profit or loss on a straight-line basis over the lease term. The Group as lessor: Operating leases: Assets that are not transferred substantially all the risks and benefits incidental to ownership of the leased asset are classified as operating leases. Rental receipts are recognized as an income in profit or loss on a straight line basis over the lease term. Initial direct costs incurred in respect of the lease agreement, are added to the carrying amount of the leased asset and recognized as an expense concurrently with recognition of rental income. Contingent rental receipts are recognized in profit or loss upon the date the Company is entitled to receive such receipts. o. Business combinations and goodwill: Business combinations are accounted for by applying the acquisition method. Under this method, the identifiable assets and liabilities of the acquired business are recognized at fair value on the acquisition date (PPA). The cost of the acquisition is the aggregate fair value of the assets transferred, liabilities incurred and equity interests issued by the acquirer on the date of acquisition

76 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Non-controlling interests are measured at proportionate share of fair value of the acquiree's net identifiable assets on the acquisition date. The direct costs relating to the acquisition are recognized as an expense in profit or loss and do not represent part of the acquisition cost. On the acquisition date, the assets acquired and liabilities assumed are classified and designated in accordance with the contractual terms, economic circumstances and other pertinent conditions that exist at the acquisition date, except for lease contracts that have not been modified on the acquisition date and whose classification as a finance or operating lease is therefore not reconsidered. In a business combination achieved in stages, equity interests in the acquiree that had been held by the acquirer prior to obtaining control are measured at the acquisition date fair value and included in the acquisition consideration while recognizing gain or loss resulting from the fair value measurement, including realization of amounts that were recorded in other comprehensive income. Contingent consideration is recognized at fair value on the acquisition date. If the contingent consideration is classified as a financial liability in accordance with IAS 39, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss. If the contingent consideration is classified as an equity instrument, it is measured at fair value on the acquisition date without subsequent remeasurement. In any event, if the changes arise from adjustments made to the interim PPA during the measurement period, they are recognized as goodwill adjustment. Acquisitions of subsidiaries that are not business combinations: Upon the acquisition of subsidiaries and activities that do not constitute a business, the consideration paid is allocated among the subsidiary's identifiable assets and liabilities based on their relative fair values on the acquisition date without attributing any amount to goodwill, and the non-controlling interests, if any, participate at their relative share of the fair value of the net identifiable assets on the acquisition date. Upon the acquisition of non-controlling interests of subsidiaries, as above, that occurred until December 31, 2009, the difference between the consideration paid and the relative portion of non-controlling interests acquired on the date of acquisition is attributed to assets and liabilities as described above. Upon the acquisition of non-controlling interests of subsidiaries, as above, that occurred starting from January 1, 2010, the accounting treatment is in accordance with section c above ("consolidated financial statements")

77 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) p. Investment property: An investment property is property (land or a building or both) held by the owner (lessor under an operating lease) or by the lessee under a finance lease to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services, for administrative purposes or for sale in the ordinary course of business. Real estate rights held by a lessee (the Group) under an operating lease are classified as investment property provided that these rights are held in order to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services, for administrative purposes or for sale in the ordinary course of business. The Group uses the fair value model for these rights. Investment property is measured initially at cost, including costs directly attributable to the acquisition. After initial recognition, investment property is measured at fair value which reflects market conditions at the end of the reporting period. Gains or losses arising from changes in the fair values of investment property are included in profit or loss when incurred. Investment property is not systematically depreciated. Transfer of a property from investment property to inventories is made at the inception of development with the intention of selling the property evidenced by approval of the development plan, finalizing the architectural planning, management resolution on commencing the project marketing, commencement of negotiations to finance the project and preparing plans to build the sales office. These activities indicate that the Company intends to develop the project rather than holding it as investment property for the purpose of capital appreciation. In addition, these activities are viewed by the Company as activities coupled with material costs. The cost considered for accounting treatment on the transition date is the fair value at the time of change on realization. Investment property is derecognized on disposal or when the investment property ceases to be used and no future economic benefits are expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognized in profit or loss in the period of the disposal. The Group determines the fair value of investment property on the basis of valuations by independent appraisers who hold recognized and relevant professional qualifications and the necessary knowledge and experience and by the Company's management having wide professional knowledge and by internal appraisers

78 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) q. Property, plant and equipment: Property, plant and equipment are measured at cost, including directly attributable costs, less accumulated depreciation, accumulated impairment losses excluding day-to-day servicing expenses. Depreciation is calculated on a straight-line basis over the useful life of the assets at annual rates as follows: % Office furniture and equipment 33 The useful life, depreciation method and residual value of an asset are reviewed at least each year-end and any changes are accounted for prospectively as a change in accounting estimate. As for testing the impairment of property, plant and equipment, see s below. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognized An asset is derecognized on disposal or when no further economic benefits are expected from its use. The gain or loss arising from the derecognition of the asset (determined as the difference between the net disposal proceeds and the carrying amount in the financial statements) is included in profit or loss when the asset is derecognized. r. Borrowing costs in respect of qualifying assets: The Group capitalizes borrowing costs that are attributable to the construction of qualifying assets. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale, comprising of tangible and inventories that require a substantial period of time to bring them to a saleable condition. The capitalization of borrowing costs commences when expenditures for the asset are being incurred, borrowing costs are being incurred and the activities to prepare the asset are in progress and ceases when substantially all the activities to prepare the qualifying asset for its intended use or sale are complete

79 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) s. Impairment of non-financial assets: t. Taxes on income: The Company evaluates the need to record an impairment of the carrying amount of non-financial assets whenever events or changes in circumstances indicate that the carrying amount is not recoverable. If the carrying amount of non-financial assets exceeds their recoverable amount, the assets are reduced to their recoverable amount. The recoverable amount is the higher of fair value less costs of sale and value in use. In measuring value in use, the expected future cash flows are discounted using a pre-tax discount rate that reflects the risks specific to the asset. The recoverable amount of an asset that does not generate independent cash flows is determined for the cash-generating unit to which the asset belongs. Impairment losses are recognized in profit or loss. An impairment loss of an asset, other than goodwill, is reversed only if there have been changes in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. Reversal of an impairment loss, as above is limited to the lower of the impairment loss previously recognized (net of depreciation or amortization) or its recoverable amount. The reversal of impairment loss of an asset presented at cost is recognized in profit or loss. Investment in associate or joint venture: After application of the equity method, the Company determines whether it is necessary to recognize any additional impairment loss with respect to the investment in associates or joint ventures. The Company determines at each reporting date whether there is objective evidence that the carrying amount of the investment in the associate or the joint venture is impaired. The test of impairment is carried out with reference to the entire investment, including the goodwill attributed to the associate or the joint venture. Current or deferred taxes are recognized in the statement of profit or loss except to the extent that the tax arises from items which are recognized directly in other comprehensive income or in equity. 1. Current taxes: The current tax liability is measured using the tax rates and tax laws that have been enacted or substantively enacted by the end of reporting period as well as adjustments required in connection with the tax liability in respect of previous years. 2. Deferred taxes: Deferred taxes are computed in respect of temporary differences between the carrying amounts in the financial statements and the amounts attributed for tax purposes

80 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Deferred taxes are measured at the tax rates that are expected to apply to the period when the taxes are reversed in profit or loss, comprehensive income or equity, based on tax laws that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is not probable that they will be utilized. Also, temporary differences for which deferred tax assets have not been recognized are reassessed and deferred tax assets are recognized to the extent that their recoverability has become probable. In cases where the Company holds an asset company and the manner in which the Company expects to sell its investment is by selling the shares of the asset company and not by selling the asset itself, the Company is required to recognize deferred taxes while taking into account the inside temporary differences deriving from the tax base of the asset and its carrying value and taking into account the outside temporary differences deriving from the tax base of the shares and the share of the company holding the net assets of the subsidiary in the consolidated financial statements. Taxes that would apply in the event of the disposal of investments in investees have not been taken into account in computing deferred taxes, as long as the disposal of the investments in investees is not probable in the foreseeable future. Also, deferred taxes that would apply in the event of distribution of earnings by investees as dividends have not been taken into account in computing deferred taxes, since the distribution of dividends does not involve an additional tax liability or since it is the Company's policy not to initiate distribution of dividends that would trigger an additional tax liability. Taxes on income that relate to distributions of an equity instrument and to transaction costs of an equity transaction are accounted for pursuant to IAS 12. Deferred taxes are offset if there is a legally enforceable right to offset a current tax asset against a current tax liability and the deferred taxes relate to the same taxpayer and the same taxation authority. u. Share-based payment transactions: The Company's employees are entitled to remuneration in the form of equity-settled share-based payment transactions

81 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Equity-settled transactions: The cost of equity-settled transactions with employees is measured at the fair value of the equity instruments granted at grant date. The fair value is determined using a standard option pricing model; additional details are given in Note 18e. In estimating fair value, the vesting conditions (consisting of service conditions and performance conditions other than market conditions) are not taken into account. The only conditions taken into account in estimating fair value are market conditions and non-vesting conditions. The cost of equity-settled transactions is recognized in profit or loss, together with a corresponding increase in equity, during the period which the performance and/or service conditions are to be satisfied, ending on the date on which the relevant employees become fully entitled to the award ("the vesting period"). The cumulative expense recognized for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. Expense in respect of grants that do not ultimately vest is not recognized, except for grants, the vesting of which depends on market conditions which are accounted as grants that vested regardless of market conditions assuming that all of the other vesting conditions (service and/or performance) were met. If the Company modifies the conditions on which equity-instruments were granted, an additional expense is recognized for any modification that increases the total fair value of the share-based payment arrangement or is otherwise beneficial to the employee at the modification date. v. Revenue recognition: Revenues are recognized in profit or loss when the revenues can be measured reliably, it is probable that the economic benefits associated with the transaction will flow to the Company and the costs incurred or to be incurred in respect of the transaction can be measured reliably. The specific criteria for revenue recognition for the following types of revenues are: Revenues from the rendering of services (including asset management fees): Revenues from the rendering of services are recognized by reference to the stage of completion at the end of the reporting period. Under this method, revenues are recognized in the accounting periods in which the services are rendered. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are recoverable

82 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Revenues from the sale of residential apartments: Revenues from the sale of residential apartments are recognized when the principal risks and rewards of ownership have passed to the buyer. Revenues are recognized when significant uncertainties regarding the collection of the consideration no longer exist, the related costs are known and there is no continuing managerial involvement with the residential apartment delivered. These criteria are usually met when construction has been substantially completed, the residential apartment has been delivered to the buyer and the buyer has paid the entire consideration for the apartment. Rental income: Rental income is recognized on a straight-line basis over the lease term. Where there is a fixed increase in rent over the term of the contract, the aggregate amount of the increase is recognized as revenues on a straight-line basis over the lease period. Interest income: Interest income on financial assets is recognized as it accrues using the effective interest method. w. Reporting revenues using gross basis or net basis: In cases where the Group acts as an agent or as a broker without being exposed to the risks and rewards associated with the transaction, its revenues are presented on a net basis. However, in cases where the Group operates as a principal supplier and is exposed to risks and rewards associated with the transaction, its revenues are presented on a gross basis. According to the Group's activity, it bears the risks stemming from revenues from property management and therefore, the Company recognizes its revenues on a gross basis. x. Finance income and expenses: Finance income comprises interest income on amounts invested.changes in fair value of financial assets at fair value through profit or loss also include revenues from dividends and interest. Finance expenses comprise interest expenses on loans received, changes in fair value of financial assets and financial liabilities measured at fair value through profit or loss and impairment losses of financial assets and losses on hedges recognized in profit or loss. Borrowing costs that are not capitalized to qualifying assets are recognized in profit or loss using the effective interest method. Gains and losses on exchange rate differences are reported on a net basis

83 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) y. Operating segments: An operating segment is a component of the Group that meets the following three criteria: 1. is engaged in business activities from which it may earn revenues and incur expenses, including revenues and expenses relating to intragroup transactions; 2. whose operating results are regularly reviewed by the Group's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and 3. for which separate financial information is available. z. Earnings (loss) per share: Earnings per share are calculated by dividing the net income attributable to equity holders of the Company by the weighted number of Ordinary shares outstanding during the period. Basic earnings per share only include shares that were actually outstanding during the period. Potential Ordinary shares are only included in the computation of diluted earnings per share when their conversion decreases earnings per share or increases loss per share from continuing operations. Further, potential Ordinary shares that are converted during the period are included in diluted earnings per share only until the conversion date and from that date in basic earnings per share. The Company's share of earnings of investees is included based on the earnings per share of the investees multiplied by the number of shares held by the Company. aa. Provisions: A provision in accordance with IAS 37 is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are measured according to the estimated future cash flows discounted using a pre-tax interest rate that reflects the market assessments of the time value of money and, where appropriate, those risks specific to the liability. Following are the types of provisions included in the financial statements: Legal claims: A provision for claims is recognized when the Group has a present legal or constructive obligation as a result of a past event, it is more likely than not that an outflow of resources embodying economic benefits will be required by the Group to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the effect of the time value of money is material, a provision is measured at its present value

84 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) bb. Advertising expenses: Expenditures incurred on advertising, marketing or promotional activities, such as production of catalogues and promotional pamphlets, are recognized as an expense when the Group receives those services. cc. Treasury shares: Company shares held by the Company and/or subsidiaries are recognized at cost of purchase and presented as a deduction from equity. Any gain or loss arising from a purchase, sale, issue or cancellation of treasury shares is recognized directly in equity. dd. Fair value measurement: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurement is based on the assumption that the transaction will take place in the asset's or the liability's principal market, or in the absence of a principal market, in the most advantageous market. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. Fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities measured at fair value or for which fair value is disclosed are categorized into levels within the fair value hierarchy based on the lowest level input that is significant to the entire fair value measurement: Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 - inputs other than quoted prices included within Level 1 that are observable directly or indirectly. Level 3 - inputs that are not based on observable market data (valuation techniques which use inputs that are not based on observable market data)

85 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) ee. Disclosure of new IFRS standards in the period prior to adoption IFRS 9 - Financial Instruments: 1. In July 2014, the IASB issued the full and final draft of IFRS 9, "Financial Instruments", which replaces IAS 39, "Financial Instruments: Recognition and Measurement". IFRS 9 ("the Standard") focuses mainly on the classification and measurement of financial assets and it applies to all financial assets within the scope of IAS 39. According to the Standard, all financial assets should be measured at fair value upon initial recognition. In subsequent periods, debt instruments should be measured at amortized cost only if both of the following conditions are met: - the asset is held within a business model whose objective is to hold assets in order to collect the contractual cash flows. - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Subsequent measurement of all other debt instruments and financial assets should be at fair value. The standard distinguishes between debt instruments measured at fair value through profit or loss and debt instruments measured at fair value through other comprehensive income. Financial assets that are equity instruments should be measured in subsequent period at fair value and the differences shall be recorded in profit or loss or in other comprehensive income (loss) as the Company chooses with respect to each instrument. In case equity instruments held for trading purposes are involved, it is mandatory to measure them at fair value through profit or loss. As to the derecognition of financial liabilities, the standard prescribes the same provisions required under IAS 39 regarding derecognition and financial liabilities for which the fair option was not chosen. Under the standard, the amount of change in the liability's fair value attributed to changes in credit risk will be recorded in other comprehensive income. All other changes in fair value will be recorded in profit or loss. The standard includes new requirements regarding hedge accounting. The standard will be applied effective with the annual periods commencing January 1, Early adoption permitted. The Company estimates that the amendments to IFRS 9 are not expected to have a material effect on the financial statements

86 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) 2. Amendments regarding derecognition and financial liabilities (Phase 2) were published. According to those amendments, the provisions of IAS 39 will continue to apply to derecognition and to financial liabilities for which the fair value option has not been elected (designated as measured at fair value through profit or loss); that is, the classification and measurement provisions of IAS 39 will continue to apply to financial liabilities held for trading and financial liabilities measured at amortized cost. Pursuant to the amendments, the amount of the adjustment to the liability's fair value that is attributable to changes in credit risk should be presented in other comprehensive income. All other fair value adjustments should be presented in profit or loss. If presenting the fair value adjustment of the liability arising from changes in credit risk in other comprehensive income creates an accounting mismatch in profit or loss, then that adjustment should also be presented in profit or loss rather than in other comprehensive income.. The IASB did not set a mandatory effective date for IFRS 9. Early application is permitted provided that the Company also adopts the provisions of IFRS 9 regarding the classification and measurement of financial assets (the asset Phase). Upon initial application, the amendments are to be applied retrospectively by providing the required disclosure or restating comparative figures, subject to relives specified in the amendments

87 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Amendments to IFRS ", 11 Joint Arrangements,"regarding the acquisition of interests in a joint operation in which the activity constitutes a business as defined in IFRS : 3 On May 6, 2014, the IASB issued amendments to IFRS ", 11 Joint Arrangements (the amendments) that prescribe the accounting treatment of the acquisition of interests in a joint operation in which the activity constitutes a business as defined in IFRS 3. The amendments require the acquirer of interests in such a transaction to account for the transaction as a business combination in accordance with IFRS 3 and with other relevant IFRSs,including the measurement of the identifiable assets and liabilities at fair value, the recognition of deferred taxes arising from this measurement,the accounting treatment of the related transaction costs and the recognition of goodwill or bargain purchase gains. The amendments are to be applied prospectively for annual periods beginning on or after January 1, Early adoption is permitted. The Company estimates that the amendments are not expected to have a material effect on the financial statements. IFRS 15, "Revenue from Contracts with Customers": In May, 2014 the IASB issued IFRS 15 (IFRS 15) IFRS 15 replaces IAS ", 18 Revenue,"IAS", 11 Construction Contracts,"IFRIC,13 "Customer Loyalty Programs,"IFRIC", 15 Agreements for the Construction of Real Estate,"IFRIC", 18 Transfers of Assets from Customers "and SIC-31",Revenue - Barter Transactions Involving Advertising Services." The IFRS 15 introduces a five-step model that will apply to revenue earned from contracts with customers: Step : 1 Identify the contract with a customer,including reference to contract combination and accounting for contract modifications. Step : 2 Identify the separate (distinct) performance obligations in the contract Step : 3 Determine the transaction price,including reference to variable consideration, financing components that are significant to the contract, non-cash consideration and any consideration payable to the customer. Step : 4 Allocate the transaction price to the separate performance obligations on a relative stand-alone selling price basis using observable information, if it is available,or using estimates and assessments

88 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) Step : 5 Recognize revenue when the entity satisfies a performance obligation over time or at a point in time. IFRS 15 is to be applied retrospectively for annual periods beginning on or after January 1, Early adoption is permitted. At this time, the Company does not intend to adopt the standard by early adoption. IFRS 15 allows an entity to choose to apply partly a modified retrospective approach, according to which IFRS 15 will only be applied in the current period presented to existing contracts at the date of initial application where no restatement of the comparative periods will be required. In this case, the Company should recognize the cumulative impact of the initial application of the standard as adjustment for the opening balance of surplus (or another equity component, as applicable) as of the initial application date. Alternatively, the new standard allows full retrospective implementation with certain relieves. At this stage, the Company is evaluating the various options of retrospective implementation of IFRS 15. The Company generates its revenues from 2 main sources: leasing of assets and development and sale of residential apartments. The commenced preparations to implement the new standard on the effective date while reviewing its possible effect on its financial statements as specified below: a) Revenues from leasing assets The Company expects that the implementation of the standard shall have no material effect in this regard. b) Revenues from sale of residential apartments The Company operates in real estate development for the construction and sale of residential apartments in Germany. Today, the Company recognizes revenue from the sale of apartments upon delivery of the apartment to the buyer. In accordance with the new standard, on the date of signing the contract with the customer, the Company recognizes the residential apartment as performance obligation. In connection with this activity, based on an initial examination of the contracts with its customers and based on the law and the relevant regulation, the Company estimates that in the framework of the contracts with its customers no asset with alternative use was resulted to the Company, and also has a payment right which is enforceable for the performance completed until that date. Therefore, in accordance with the new standard, the Company recognizes revenue from these contracts over time, according to the pace of the contract execution. As a result of the foregoing, the Company expects that the implementation of the new standard, the timing of revenue recognition from the sale of residential apartments will differ materially since the Company recognizes these revenues in earlier periods

89 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) In addition, the Company examines among others the following issues regarding revenues from the sale of residential apartments: 1. Measurement unit the Company is required to determine the measurement unit for revenue recognition. At this stage, the Company estimates that the measurement unit will be a residential apartment the object of the sale contract with the customer. 2. Determining the transaction price - the company is required to determine the transaction price separately for each contract with a customer. Upon exercising such judgment, the Company estimates the impact of any variable consideration in the contract, taking into account discounts, fines, changes, claims, and the existence of a significant financing component of the contract as well as non-cash consideration. In determining the impact of the variable consideration, the Company expects to use the method of "the most likely amount" specified in the standard, according to which the price of the transaction was determined based on the amount which is the most reasonable in the confines of possible consideration amounts contained in the contract. The Company will include variable amounts of consideration only if it is highly probable (Highly probable) that the cancellation of a significant amount of revenues recognized will not occur when the uncertainty associated with the change of consideration will become apparent later. 3. Measurement of performance progress - for the purpose of measuring performance progress, the company estimates that will implement the input method (Input Method), irrespective of the costs that do not reflect the progress of such performance, such as land surcharges and credit costs. The Company believes that the use of the input method, whereby revenue is recognized on the basis of inputs invested by the Company in order to comply with the performance commitment will best show the actual income generated. In order to implement the input method, the Company is required to estimate the costs necessary to complete the project in order to determine the amount of revenue recognized. These estimates include the direct and indirect costs attributed directly to performing the contract and are allocated on the basis of a reasonable burden key. Usually, delivery of a specific residential apartment cannot be made before the construction of the building and/or the entire project is completed. Therefore, the Company will determine the performance progress rate under which revenue for each specific sale contract is recognized according to the progress rate of the building and/or the entire project. 4. The existence of a significant finance component in the contract - in order to examine the existence of a significant finance component in the contract, the Company expects to select a practical relief in the new standard where the consideration amount for the financing component cannot be adjusted when on the contract date it is expected that the period between the date of receipt of the consideration and the date of revenue recognition does not exceed one year. In cases of receiving long term advances (over one year), the Company will accrue interest on the advances over the expected contract period when there is a significant financing component contract as defined in the new standard

90 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) With the realization of advances, the Company will recognize accrued interest as income from the sale of apartments. 5. Onerous contracts - A provision for onerous contracts is recognized when the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received by the Group from the contract. The provision is measured at the lower of the present value of the anticipated cost of exiting from the contract and the present value of the net anticipated cost of fulfilling it. The Company will review frequently the need for making a provision for onerous contract according to the requirements of IAS 37 which are relevant to all contract in which revenue is recognized according to IFRS 15. c) Disclosure and presentation The new Standard introduces more detailed and extensive disclosure and presentation requirements than under existing standards. The Company has begun evaluating the need for adjustments to its systems, internal control, policies and procedures that will be necessary in order to gather the information underlying the disclosures. The Company has begun evaluating the effects of the adoption of the new Standard, including the adjustments to the Company's systems, internal control, policies and procedures that will be necessary for the application of the new Standard. As described above, the adoption of the new Standard is expected to have a material effect on the Company's financial statements, primarily due to the change in the revenue recognition model for sales of residential apartments. Nevertheless, at this stage, the Company is unable to quantify the effect of the adoption of the new Standard on its financial statements. However, based on preliminary estimates, taking into consideration the rate of sales and the stage of completion of the projects under construction, the Company expects to record an increase in equity compared to the equity that will be reported in the statement of financial position as of December 31, 2017, under the current accounting treatment. Furthermore, the adoption of the new Standard is not expected to have an adverse effect on the Company's compliance with any financial covenants and is expected to affect the compensation of senior officers and interested parties The Company expects to continue providing updates of its progress in adopting the new Standard in its interim financial statements for

91 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 2:- SIGNIFICANT ACCOUNTING POLICIES (Cont.) IFRS 16, "Leases": The new standard that was issued in January 2016 replaces IAS 17 "Leases" and the related interpretations and determines the rules for recognition, measurement, and disclosure of leases with respect to the two parties of the transaction, namely the customer (lessee) and the supplier (lessor). The new standard cancels the existing distinction regarding the lessee between finance leases and operating leases and sets a uniform accounting model with respect to all types of leases. Under the new model, on one hand, lessees are required to initially recognize a lease liability for the obligation to make lease payments and on the other hand, recognize the asset right-of-use. The provisions of the asset and liability recognition will not apply to assets leased for only 12 months and regarding leases of assets with low value (such as personal computers). The accounting treatment by lessors remains substantially unchanged. The new Standard is effective for annual periods beginning on or after January 1, Earlier application is permitted provided that IFRS 15, "Revenue from Contracts with Customers", is applied concurrently. As a rule, the standard will be applied retrospectively; however entities may choose certain adjustments under the transition provisions of the standard as to its application for prior reporting periods. The Company is evaluating the possible effects of the new Standard on the financial statements

92 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 3:- CASH AND CASH EQUIVALENTS AND BALANCES RECEIVABLE FROM BANKS December 31, Euros in thousands Cash on hand (1) 76,748 43,115 Short-term deposits (2) 12,530 12,705 Balances receivable from banks (3) 2,221 24,969 91,499 80,789 (1) As of December 31, 2016, the Company's balance of approximately 392 thousand denominated in NIS (2015- approximately 4,711 thousand denominated in NIS). The remaining deposits are denominated in Euro. (2) Short-term deposits bear average yearly interest of 0% %. (3) Closed hedge transactions, can be received from banks immediately ( On Call ) NOTE 4:- RESTRICTED DEPOSITS AND OTHER RECEIVABLES December 31, Euros in thousands Restricted bank accounts (1) 5,927 8,605 Trust deposit Prepaid expenses 1,724 1,251 Government authorities 1,263 1,355 Other receivables and debit balances (1) The balance bears annual interest of 0% %. NOTE 5:- TENANTS AND TRADE RECEIVABLES, NET 10,088 12,031 December 31, Euros in thousands Open debts and accrued income 7,884 9,526 Less - allowance for doubtful accounts ) 4,339( )3,849( Tenants and trade receivables, net 3,545 5,

93 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 5:- TENANTS AND TRADE RECEIVABLES, NET (Cont.) The following is the movement in allowance for doubtful accounts: Balance as of December 31, 2016 Euros in thousands Balance as of December 31, ,849 Allowance during the year 1,201 Recognition of bad debts that were written off )711( Balance as of December 31, ,339 As of December 31, 2016, of the total tenants and trade receivables, net, 1,318 thousand ( 1,521 thousand as of December 31, 2015) are in arrears. NOTE 6:- INVENTORY OF BUILDINGS UNDER CONSTRUCTION AND INVENTORY OF REAL ESTATE Inventory of apartments under construction and inventory of real estate includes a project in Düsseldorf, Germany, to build approximately 1,000 residential units. During 2016, the Company delivered 148 residential units and recognized revenues and cost of sales of EUR 73,935 thousand and EUR 58,537 thousand, respectively. As of December 31, 2016, the Company has 14 residential units that were not yet delivered to apartment purchasers. In addition, the Company received advance payments from apartment purchasers in respect of apartments and inventory of apartments under construction in the amount of EUR 16,073 thousand. The remaining apartments of the project are in various construction stages. a. Composition of inventory of buildings under construction December 31, Euros in thousands Cost of real estate 22,969 23,900 Cost of local business tax 2,466 3,228 Cost of construction 20,319 32,461 Capitalized borrowing costs ,754 59,

94 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 6:- INVENTORY OF BUILDINGS UNDER CONSTRUCTION AND INVENTORY OF REAL ESTATE (Cont.) b. Composition of inventory of real estate December 31, Euros in thousands Cost of real estate 11,248 21,518 Cost of local business tax 1,210 2,639 Cost capitalized to real estate 1,362 1,434 13,820 25,591 NOTE 7:- INVESTMENTS ACCOUNTED AT EQUITY Information on jointly controlled company measured at equity Name of company/partnership Country of incorporation Principal place of business Nature of relationship (1) Brack capital (Chemnitz) BV The Netherlands Germany Ownership (1) NFB SÜD GmbH & Co. KG Germany Germany Ownership (2) (1) The Company has a joint control agreement with the partner. The Company holds 60% of the shares of the jointly controlled company and 50% of the voting rights of the jointly controlled company. The jointly controlled company holds a real estate asset in Germany. (2) The Company has a joint control agreement with the partner. The Company holds 50% of the shares of the partnership and 50% of the rights of the partnership. The partnership holds a real estate asset in Germany

95 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN GENERATING ASSETS a. Composition and movement REAL ESTATE AND INCOME December 31, Euros in thousands Balance as of January 1 1,081, ,585 Additions during the year Purchases and additions during the year (f) 104,445 46,960 Transfer to inventory - )367( Realization of investment property ) 10,963( )153( Realization of subsidiaries ) 61,479( - Fair value adjustment 78,598 44,256 Balance as of December 31 1,191,882 1,081,281 Investment property consists of commercial and residential real estate projects leased to third parties, and lands designated for betterment. Presentation in the statement of financial position December 31, Euros in thousands Investment property real estate rights 101, ,038 Investment property - income generating assets 1,089, ,243 Balance as of December 31 1,191,882 1,081,281 c. Investment property is stated at fair value, as determined in valuations generally performed by independent outside appraisers who hold recognized and relevant professional qualifications and who have extensive experience in the location and category of the property being valued. Valuations are occasionally carried out by management. The fair value was determined based on estimated future cash flows from the property. In estimating cash flows, their inherent risks and limitations of rental fees are taken into account where they are capitalized at a rate of return that reflects the risks entailed in the cash flows, which is determined taking into account the market rate of return, whilst adapting it to the specific characteristics of the property and the level of risk of the revenues expected from it. Where it is not possible to rely on transactions recently executed with reference to similar real estate in a similar locations, in valuing real estate owned by the Company, the value estimates are carried out using a salvage approach, as deemed correct by the value appraiser. Determining this value is based on an estimate of future revenues expected from the completed project, using rates of return that are adapted to the relevant significant risks entailed in the construction process, including building and rental risks, which are higher than the current return on similar investment real estate the construction of which has been completed

96 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN REAL ESTATE AND INCOME GENERATING ASSETS (Cont.) In few occasions, where the management expects to realize the real estate in asset companies by means of a shares transaction, as is practiced in the market in which it operates, the expected mode of realization is taken into account in making the fair value calculations and the value adjustments required in these cases. c. Significant assumptions (based on weighted averages) that were used in valuation estimated are as follows: Income-generating residential real estate December 31, Discount rate (%) * Cap rate (%) * Long-term vacancy rate )%( Representative monthly rental fees per sq. m. (in Euros) Income-generating commercial real estate (**) December 31, Discount rate (%) * Cap rate (%)* Representative monthly rental fees per sq. m. (in Euros) Lands for betterment, Düsseldorf, Germany *** December 31, Discount rate (%) Representative monthly rental fees for residential per sq. m. (in Euros) Expected construction costs per sq.m (in Euro) 2,407 2,477 *) it is noted that according to the methodology applied in the valuations, the estimated cash flow for the first 10 years are capitalized based on the Discount Rate basis. Cash flows effective from the eleventh year onwards are capitalized based on the Cap Rate basis. **) it is noted that according to the valuation methodology based on cash flow discount method of free flows from the asset, the vacancy rate in assets is reflected in the free cash flow

97 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN REAL ESTATE AND INCOME GENERATING ASSETS (Cont.) d. Fair value adjustment of investment property (level 3 in the fair value hierarchy): Residential buildings Commercial buildings Land for betterment Total Euros in thousands Balance as of January 1, , , ,038 1,081,281 Remeasurement recognized in profit or loss 58,445 17,758 4,256 80,459 Sales ) 903( ) 70,752( ) 4,623( )76,278( Purchases and additions 91,070 14,082 1, ,420 Balance as of December 31, , , ,939 1,191,882 Sensitivity analysis The following is a sensitivity analysis of investment property at capitalization rate based on standardized NOI: Based on NOI of 61.2 million (standardized NOI) any change of 25 points at the capitalization rate over fair value adjustment is 48.6 million. e. Regarding charges see Note 17a. f. Purchases and sales of investment property during the year 1. Purchase of assets in Kiel, northern Germany - on December 18, 2015, the Company (through a sub-subsidiary) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders (only in this sub section: the seller) under which the seller shall sell the Company 296 residential units in northern Germany (only in this sub section: the acquired assets) for a total consideration of EUR 20.4 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a subsidiary) entered into an agreement with a German bank to obtain a loan of EUR 14 million under non- recourse terms bearing an annual fixed interest rate of 1.24% which its final repayment date is 5 years from the date of extending the loan. On March 1, 2016, said transaction was completed. 2. Purchase of additional assets in Kiel, northern Germany on March 16, 2016, the Company (through a sub-subsidiary) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders (only in this sub section: the seller) under which the seller shall sell the Company 287 residential units in Kiel, northern Germany (only in this sub section: the acquired assets) for a total consideration of EUR 36 million (including related transaction costs)

98 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BRACK CAPITAL PROPERTIES NV NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN REAL ESTATE AND INCOME GENERATING ASSETS (Cont.) For the purpose of financing the purchase, the Company (through a sub-subsidiary) entered into an agreement with a German bank to obtain a loan of EUR 25 million under nonrecourse terms which its final repayment date is 5 years from the date of extending the loan bearing a fixed annual interest rate of 1.65%. The transaction was completed on June 1, Purchase of an asset in Hannover, Germany - on March 18, 2016, the Company (through sub subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the seller will sell the Company residential, commercial and office building in Hannover, Germany (in this sub section only: the acquired asset) for a total of EUR 7.8 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a sub-subsidiary) entered into an agreement with a German bank to obtain a loan in the amount of EUR 5.6 million under non-recourse terms which its final repayment date is December 31, 2019 bearing a fixed annual interest rate of 1.49%. The transaction was completed on July 1, Purchase of an asset in Dortmund, Germany - on March 23, 2016, the Company (through a sub-subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (in this sub section only: the seller) under which the seller will sell the Company 32 residential units in Dortmund, Germany (in this sub section only: the acquired asset) for a total of EUR million (excluding related transaction costs). For the purpose of financing the purchase, the Company entered into an agreement with a German bank to obtain a loan in the amount of EUR 1.75 million under non-recourse terms which its final repayment date is 5 years from the date of extending the loan bearing a variable interest based on the Euribor rate for 3 months plus a margin of 1.3% per annum. The transaction was completed on June 1, Purchase of an asset in the Dortmund area, Germany - on May 13, 2016, the Company (through sub- subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (the seller) under which the seller will sell the Company a commercial asset in the Dortmund area, Germany for a total of EUR 9.1 million (including related transaction costs). For the purpose of financing the purchase, the Company entered into an agreement (through a sub-subsidiary) with a German bank to obtain a loan in the amount of EUR 6.35 million under non-recourse terms which its final repayment date is 5 years from the date of extending the loan bearing a fixed annual interest rate of 1.55%. The transaction was completed on July 1, Purchase of residential portfolio in Dortmund, Germany - on July 8, 2016, the Company (through sub- subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder (only in this sub section: the seller) under which the seller will sell the Company 173 residential units in Dortmund, Germany (only in this sub section: the acquired assets) for a total of EUR 8.2 million (including related transaction costs). For the purpose of financing the purchase, the Company entered into an agreement (through a sub-subsidiary) with a German bank to obtain a loan in the amount of EUR 5.6 million under non-recourse terms which its final repayment date is 5 years from the date of extending the loan. The transaction was completed on October 1,

99 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN REAL ESTATE AND INCOME GENERATING ASSETS (Cont.) 7. Sale of 4 assets in eastern Germany - on September 23, 2016, the Company (through a subsubsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of its full holdings in 4 asset companies for EUR 66.5 million (plus working capital adjustments). The sold companies fully hold the ownership rights in 4 commercial income generating assets in eastern Germany in cities that are not in the Company's core operations which are leased at occupancy rate of 99%, generating annual rental revenues of EUR 4.5 million. During 2016 and in the period of 11 months ended November 30, 2016 the contribution of the sold assets to the consolidated operating profit amounted to EUR 4 million, and EUR 3.7 million, respectively. The sold assets were purchased as part of Matrix portfolio during 2011 in return to EUR 37 million, the fair value of the sold assets according to the Company's financial statement as the transaction completion date amounted to EUR 61.5 million. As a result of the transaction, and net of transaction costs, the Company recognized a profit (consolidated) of EUR 1.9 million. The completion of said transaction was carried out on November 30 which was used for a partial repayment of a portfolio loan from a bank. The remaining 9 assets of Matrix portfolio generate annual rent of EUR 8.9 million. 8. Sale of an asset in Dusseldorf, Germany - on March 4, 2016, the Company (through a subsubsidiary) entered into a notarized sale agreement with a third party who is not related to the Company and/or to its controlling shareholders for the sale of rights in an office building which is not occupied from 2013 which undergoes betterment procedures in a total area of 3,985 m 2 located in Dusseldorf. The consideration was set at EUR 5,050 thousand slightly above the value in the Company's books. It is noted that the asset is not pledged and the consideration was received in full by the Company upon the transaction completion date at the end of July Sale of an asset in Emerich, Germany at the end of July 2016, the Company (through a sub- subsidiary) consummated a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of rights in a residential building spanning over an area of 1,300 m 2 which is located in the city of Emerich producing annual rental fees of EUR 83 thousand. The transaction's consideration amounted to EUR 935 thousand where EUR 650 thousand of the consideration was used to pay a loan from a bank that financed the purchase of the asset. 10. Sale of an asset in the Bad Kreuznach, Germany - on May 13, 2016, the Company (through a sub-subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder for the sale of rights in a fully occupied building at a total area of 3,602 sq.m located in the city of Bad Kreuznach producing annual rental fees of EUR 360 thousand. The consideration was set at EUR 5.1 million slightly above the value of the asset in the Company's books. The consideration was fully received by the Company on the transaction completion date on August 1, 2016 which was used for a partial repayment of the portfolio loan from the bank

100 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 8:- INVESTMENT PROPERTY - RIGHTS IN REAL ESTATE AND INCOME GENERATING ASSETS (Cont.) g. The Company owns an income generating residential real estate where all of its lease agreements are shorter than one year. As of December 31, 2016, the Company has residential lease agreements reflecting an annual rental income of 40.2 million. In addition, the Company has an income generating commercial real estate consisting of assets leased to third parties. The future minimum rental fees receivable from existing tenants in the income generating commercial real estate are as follows: December Euros in thousands First year 28,711 32,740 32,676 Second to the fifth year 98, , ,065 Sixth year and thereafter 82, , , , , ,737 NOTE 9:- OTHER ACCOUNTS RECEIVABLE AND OTHER FINANCIAL ASSETS December, Euros in thousands Financial assets currency hedging and interest cap transactions (*) 2, Restricted bank accounts and other receivables (*) see Note 13 NOTE 10:- OTHER ACCOUNTS PAYABLE 2,414 1,481 December, Euros in thousands Expenses payable (*) 12,170 7,794 Interest payable 2,275 2,478 Trade payables 890 2,057 Deposits from tenants 5,927 5,080 Government authorities 3, Prepaid income 1,322 1,766 Other payables ,270 20,073 (*) As of December 31, 2016, an amount of 7,242 thousand is for transaction expenses and residential project completion

101 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES a. Composition interest rate as of December December, 31 31, % Euros in thousands Non-current bank loans: Variable interest loans measured at fair value ) 4-1( - 93,223 Fixed interest rate loans measured at fair value (*) 76, ,588 Beneficiary loans presented at fair value (b) - - 5,698 Loans presented at amortized cost EURIBOR , ,369 Debentures linked to CPI (d) (e) (f) , , , ,577 Less - current maturities ) 33,914( )85,114( Less loans from banks for financing inventory of buildings under construction ) 7,000( )3,500( 698, ,963 (*) As of December 31, 2016, a loan of 7.9 million bears interest of 3.85%. Apart from this loan, all of the loans bear fixed interest of 2.66% %. b. Movement: December 31, Euros in thousands Balance as of January 1 715, ,387 Receipt of loans and debentures 107,322 18,479 Repayments ) 40,058( )40,107( Realization of subsidiaries ) 53,697( - Cost of receiving loans amortizations and others 2, Exchange differences 6,845 15,795 Fair value adjustment 1, Balance as of December , ,

102 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) c. Additional information on loans taken in the reported period: (1) As to loans received in 2016 for financing the purchase of investment properties see section 18(f)(1) (6) (2) Refinance of Leipzig on February 1, 2016, the Company entered into a refinance agreement for a major portion of the Leipzig portfolio (about 2,790 residential units) for 7 years. The new loan of EUR 57.5 million (similar to the unsettled principal balance of the loan from 2011) which repayment date is April 30, 2023 bears a fixed interest for the first 5 years of 1.12% per annum. The loan will be paid in equal quarterly installments, principal and interest (Spitzer) effective from June 30, 2016 in the amount of NIS 449 thousand per quarter and the balance will be paid at the end of the loan term. Under the refinance, a credit facility of EUR 17.4 million was approved for the Company until 2023 where if and when used it will bear a variable Euribor interest for 3 months plus a margin of 1% per annum. Refinance of additional loans from German banks at the end of December 2016, the Company completed the refinance of 4 loans from 2 different German banks. The new loans are for a period of 7 years totaling EUR 55.8 million compared to EUR 41.8 million, the amount of the repaid loans. The new loans bear fixed weighted average interest of 1.90% per annum compared to weighted average interest (mostly variable) of 1.78% of the repaid loans. (3) Refinance of loans from German banks at the end of September 2016, the Company completed the refinance of 3 loans from 3 different German banks. The new loans are for a period of 5 years totaling EUR 126 million plus a credit facility of EUR 20 million (for financing the purchase of additional income generating assets in NRW and Hannover region) compared to EUR 113 million, the amount of the repaid loans. The new loans bear fixed weighted average interest of 1.25% per annum compared to weighted average interest of 2.27% of the repaid loans. (4) Refinance of additional loans from German banks at the end of December 2016, the Company completed the refinance of 4 loans from 2 different German banks. The new loans are for a period of 7 years totaling EUR 55.8 million compared to EUR 41.8 million, the amount of the repaid loans. The new loans bear fixed weighted average interest of 1.90% per annum compared to weighted average interest (mostly variable) of 1.78% of the repaid loans. d. In 2011 and 2012, the Company issued NIS 400 million of debentures (Series A) par value NIS 1 each by 2 IPOs and 1 private issuance. The debentures bear a yearly average interest denominated at 4.8% linked to the Consumer Price Index and paid every six months (effective interest of 5.53%). The debentures are payable in 7 equal annual principal payments on July 14 of each of the years between 2014 and 2020 (inclusive). The Company has undertaken that so long as the debentures (Series A) are still outstanding: 1. Equity attributable to Company shareholders shall not fall below 80 million. 2. No distribution of dividends, distribution of capital or share buy-back shall take place if as a result the equity attributed to Company shareholders falls below 80 million

103 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) 3. The ratio between the equity attributed to the Company's shareholders at the end of each quarter to the net financial debt (financial liabilities less cash, cash equivalents and short-term investments) according to the financial statements attributed to the Company ( Solo Reports ) shall not fall below 187.5%. 4. The ratio between the Company s total net financial liabilities that are: a. Company obligations for the repayment of loans with recourse. b. The Company s obligations for the repayment of debentures (Series A) and other debentures, if any. c. The Company s obligations to repay other loans the repayment date of which falls during the period of the debentures (Series A). d. Any debt of the Company s subsidiaries towards a third party is pledged by a lien, but no more than the value of the pledged asset. All less cash, cash equivalents and short-term investments, and the Company s total equity (including non-controlling rights) plus: a. The Company s total net financial liabilities (as defined above). b. Any loan received by the Company from any party that according to its conditions is subordinate in its repayment levels to the debentures (Series A) and which cannot be repaid (principal and/or interest) over the course of the debentures (Series A) period. c. Reductions in value listed pursuant to the Consolidated Financial Statements (if any) for the assets pledged to guarantee loans of sums exceeding the borrower s recourse right. Shall not exceed 90%. 5. The ratio between the value of the shares of subsidiary BGP, pledged to guarantee the repayment of debentures (Series A) calculated on the basis of the subsidiary's equity (attributed to Company shareholders) and the Company's debts to the holders of the debentures (Series A) defined as the balance of the debentures (Series A) principal plus interest and linkage accumulated and not yet paid, shall not fall below 175%. As of December 31, 2016, the Company is in compliance with said financial covenants

104 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) a. On May 21, 2013, the Company issued to the public in Israel new series (series B) of non convertible to shares debentures in a total amount of NIS 175,000,000 par value by way of uniform offer according to a shelf prospectus report dated May 19, 2013 by virtue of the Company's shelf prospectus dated May 24, 2012 (as amended in the modified prospectus dated May 9, 2013). The debentures bear annual interest of 3.29% (payable in semi annual payments in June and December effective December 2013) and are linked to the CPI as of April The debentures (series B) will be payable (principal) in unequal annual 12 installments on December 31 in each of the years 2013 through 2024 (inclusive) such that each payment of the first 7 payments will constitute 4% of the principal of the total par value of the debentures (series B) and each payment of the last 5 payments will constitute 14.4% of the principal of the total par value of the debentures (series B). In addition, on January 27, 2014, the Company's Board of Directors approved a private placement of 72,000,000 debentures (Series B) of NIS 1 par value, listed for trade, to 10 institutional investors (the offerees) by expanding the existing debenture series of the Company (Series B) listed for trade ("the offered securities" and "the private placement"). The Company has undertaken that so long as the debentures (Series A) are still outstanding: 1. Equity attributable to Company shareholders shall not fall below 150 million. 2. No distribution of dividends, distribution of capital or share buy-back shall take place if as a result the equity attributed to Company shareholders falls below 160 million and/or debt ratio to CAP (as detailed in section 3 below) will exceed 70%. 3. The ratio between the Company s total net financial liabilities that are: a. Company obligations for the repayment of loans with recourse. b. The Company s obligations for the repayment of debentures (Series A and B) and other debentures, if any. c. The Company s obligations to repay other loans the repayment date of which falls during the period of the debentures (Series B). d. Any debt of the Company s subsidiaries towards a third party is pledged by a lien, but no more than the value of the pledged asset. All less cash, cash equivalents and short-term investments, and the Company s total equity (including non-controlling rights) plus: a. The Company s total net financial liabilities (as defined above). b. Any loan received by the Company from any party that according to its conditions is subordinate in its repayment levels to the debentures (Series A) and which cannot be repaid (principal and/or interest) over the course of the debentures (Series B) period

105 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) c. Reductions in value listed pursuant to the Consolidated Financial Statements (if any) for the assets pledged to guarantee loans of sums exceeding the borrower s recourse right. Shall not exceed 75%. 4. The ratio between the value of the shares of subsidiary BGP, pledged to guarantee the repayment of debentures (Series B) calculated on the basis of the subsidiary's equity (attributed to Company shareholders) and the Company's debts to the holders of the debentures (Series B) defined as the balance of the debentures (Series B) principal plus interest and linkage accumulated and not yet paid, shall not fall below 175%. b. In July 2014, the Company completed the issuance to the public in Israel new series (series C) of non convertible to shares debentures. Under the shelf prospectus report dated July 20, 2014 (July 2014 shelf prospectus report) by virtue of the shelf prospectus dated May 24, 2012 (as amended in the modified prospectus dated May 9, 2013 and the modified prospectus dated July 14, 2014 (collectively: the prospectus), NIS 125,000,000 par value of debentures (series C) with a duration of 8.5 years were offered to the public. The debentures (series C) were offered by way of a uniform offer as prescribed in the securities regulations (manner of offering securities to the public) 2007 in 125,000 units by way of tender on the annual interest rate to be borne by the debentures (series C). The annual interest rate determined in the tender, which was held on July 21, 2014, is 3.3%. The interest on the debentures (series C) will be paid in two semiannual installments on January 20 and July 20 of each of the years (inclusive) effective January 20, On July 22, 2014, the Company allocated according to the outcome of the issuance, NIS 102,165,000 par value of debentures (series C). On July 24, 2014, trading has commenced in the above securities in the Tel Aviv Stock Exchange (the Stock Exchange). In addition, on April 4, 2016, the Company completed an issuance to the public in Israel of 60,058,000 debentures (series C) of NIS 1 listed for trade by expanding existing series of debentures (series C). The debentures (series C) will be linked to the CPI and payable (principal) in unequal annual 12 installments on July 20 in each of the years 2015 through 2026 (inclusive) such that each payment of the first 9 payments will constitute 2% of the principal of the total par value of the debentures (series C), the tenth payment will constitute 17% of the principal of the total par value of the debentures (series C) and each payment of the last 2 payments will constitute 32.5% of the principal of the total par value of the debentures (series C). The Company has undertaken that so long as the debentures (Series C) are still outstanding: 1. Equity attributable to Company shareholders shall not fall below 190 million. 3. No distribution of dividends, distribution of capital or share buy-back shall take place if as a result the equity attributed to Company shareholders falls below 200 million

106 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) 3. The ratio between the Company s total net financial liabilities that are: a. Company obligations for the repayment of loans with recourse. b. The Company s obligations for the repayment of debentures (Series A, B and C) and other debentures, if any. c. The Company s obligations to repay other loans the repayment date of which falls during the period of the debentures (Series C). d. Any debt of the Company s subsidiaries towards a third party is pledged by a lien, but no more than the value of the pledged asset. All less cash, cash equivalents and deposits and the debt in respect of inventory of apartments under construction and the Company s total equity (including noncontrolling rights) plus: a. The Company s total net financial liabilities (as defined above). b. Any loan received by the Company from any party that according to its conditions is subordinate in its repayment levels to the debentures (Series C) and which cannot be repaid (principal and/or interest) over the course of the debentures (Series C) period. c. Reductions in value listed pursuant to the Consolidated Financial Statements (if any) for the assets pledged to guarantee loans of sums exceeding the borrower s recourse right. Shall not exceed 75%. 4. The ratio between the value of the shares of subsidiary BGP, pledged to guarantee the repayment of debentures (Series C) calculated on the basis of the subsidiary's equity (attributed to the Company's shareholders) and the Company's debts to the holders of the debentures (Series C) defined as the balance of the debentures (Series C) principal plus interest and linkage accumulated and not yet paid, shall not fall below 175%. 1. Loans stated at fair value The fair value of the loans is calculated as the present value of the future loan payments, discounted at the market rate of interest for similar loans backed by similar collaterals (see note 15e)

107 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 11:- LOANS FROM BANKS AND DEBENTURES (Cont.) 2. Financial covenants In the context of credit framework agreements with banking corporations, subsidiaries undertook to comply with a number of financial covenants, including a loan to value (LTV) ratio between 70% and 80% and debt service coverage ratio (DSCR) (must be higher than the range between 130% to 160%). All loans are non-recourse and therefore failure to comply with the terms of one of the frameworks does not constitute violation of the other frameworks. As to the financial covenants on debentures (Series A, B and C), see d. e. and f above. As of December 31, 2016, the Company complies with all of the financial covenants as set forth. NOTE 12:- OTHER NON-CURRENT LIABILITIES December 31, Euros in thousands Liability due to lease ) 1( 3,176 3,184 Less - current maturities ) 43( )36( 3,133 3,148 ) 1( The Company leased an asset from a local authority until 2047 the following is information on finance lease liabilities according to payment dates: Minimum future lease payments December 31, 2016 Interest component Euros in thousands Present value of Minimal lease payments First year Second year to the fifth year After the fifth year 5,495 2,579 2,915 6,572 3,438 3,

108 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 13:- OTHER FINANCIAL ASSETS AND LIABILITIES a. Composition December Euros in thousands Financial assets in respect of currency exchange transactions 2,146 1,272 Financial assets in respect of cash flow hedging transactions 1 19 Financial liabilities in respect of interest swap transactions **) ) 880( )971( 1, (*) a total of 0 thousand and 499 thousand as of December 31, 2016 and 2015, respectively, are presented as short term asset. (*) A total of 456 thousand and 107 thousand as of December 31, 2016 and 2015, respectively, are presented as current maturities. b. Subsidiaries in Germany that own investment properties took loans and signed interest rate swap agreements. In these agreements, each subsidiary hedges its exposure to future changes in variable interest rates on cash flows, by swapping it for a fixed interest rate. The change in the fair value of the hedging instrument, not recognized as cash flow hedging for accounting purposes, was recognized in profit or loss. As of December 31, 2016, the fixed interest rate (with no margin) was 0.5% (see also Note 15f). c. Subsidiaries in Germany that own investment properties and took out loans some of which are with maximal interest ceiling. In addition, they entered into agreements to fix the interest rate ceiling (CAP). In these agreements, each subsidiary hedges its exposure to future changes in variable interest rates on cash flows, by fixing a ceiling rate for the payment of interest. The change in the fair value of the instrument was charged directly to the item of changes in the fair value of loans and interest swap transactions in profit or loss

109 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14:- FAIR VALUE MEASUREMENT The following table presents the fair value measurement hierarchy for the Group's assets and liabilities. Quantitative disclosures of the fair value measurement hierarchy of the Group's assets and liabilities as of December 31, 2016: Assets measured at fair value: Investment property (Note 8): Income generating commercial real estate Income generating residential real estate Land for betterment and real estate right Derivative financial assets (Note 13): Foreign currency forward contracts dollar CAP transactions Valuation Fair value hierarchy date Level 1 Level 2 Level 3 Total Euros in thousands At various dates throughout , ,626 At various dates throughout , ,317 December 31, , ,939 December 31, , ,146 December 31, There were no transfers from level 1 to level 2 during the period

110 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 14:- FAIR VALUE MEASUREMENT (Cont.) Liabilities measured at fair value: Valuation Fair value hierarchy date Level 1 Level 2 Level 3 Total Euros in thousands Derivative financial liabilities (Note 13): Interest swap contracts Loans (note 11) Liabilities whose fair value is disclosed (Note 15): Debentures (note 11) December 31, ) 875( - )875( December 31, ) 76,867( )76,867( December 31, 2016 ) 147,919( - - )147,919( NOTE 15:- FINANCIAL INSTRUMENTS a. Classification of financial assets and financial liabilities Cash, loans and receivables at amortized cost December 31, Euros in thousands Cash and cash equivalents 89,278 55,820 Balances receivable from banks 2,221 24,969 Restricted deposits and receivables (1) 8,364 10,780 Tenants and trade receivables 3,545 5,677 Other non-current receivables and restricted deposits Loans to associates 8,318 5, , ,940 Financial liabilities measured at fair value through profit or loss Credit from banks and others ) 76,867( )245,509( Derivative financial instruments (fair value) Financial assets 2,147 1,272 Financial liabilities ) 875( )969( 1,

111 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) December 31, Euros in thousands Other financial liabilities at amortized cost Debentures ) 147,919( )143,699( Credit from banks and others ) 514,454( )326,369( Other accounts payable (2) ) 19,021( )15,059( Liability in respect of leasing ) 3,133( )3,148( ) 684,527( (488,275) (1) With the exception of prepaid expenses. (2) With the exception of deposits from tenants and prepaid income. b. Market risk 1. Foreign currency risk The Company has debentures denominated in NIS and from time to time carries out hedging transactions against the weakening of the Euro and accordingly, it is exposed to exchange rate risk deriving from exposure to this currency. This risk derives from recognized liabilities denominated in foreign currency which is other than the operating currency. 2. CPI risk The Company has issued debentures that are fully linked to the changes in the CPI in Israel, subject to floor index. 3. Interest rate risk The Group is exposed to risk resulting from changes in cash flows of loans bearing variable interest rates because of changes in interest rates. The Company hedges most of its financial liabilities by taking loans at fixed interest rate or by entering into interest SWAP agreements or CAP agreements. As a result, most of the Company's loans are hedged. The interest swap contract conditions are suited to the base loans. As of the report date, approximately 88% of the Company's loans and debentures are hedged

112 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) c. Credit risk Credit risk could arise from cash and cash equivalents, derivatives and deposits with banking corporations and financial institutions, as well as from receivables, including tenants' debit balances. Management has a credit and credit exposure policy that is examined on a regular basis. In principle, the Company does not provide credit to tenants. In cases in which tenants request credit, the Company carries out a credit assessment for those customers. The Group holds all or part of the tenants' deposits that are refundable until the tenants will settle their payments or in other cases of breach of contract. The Company estimates the need for making an allowance for doubtful accounts according to the management's estimate of the balance's nature based on the cumulative experience in managing the asset. Credit risk could also arise from an engagement by a number of financial instruments with a single entity. The Company holds cash and cash equivalents, short-term investments and other financial instruments in various financial institutions with high credit ratings. The Company's policy is to spread its investments among the various institutions. As of the report date, there were no significant concentrations of credit risk. According to management estimate, the balance in the financial assets of each of the financial assets represents the maximum exposure to credit risk. Other financial assets the redemption date of which was not yet due and with no collection in arrears December 31, Euros in thousands Restricted deposits and other receivables (except for prepaid expenses and institutions) 7,100 9,425 Tenants (accrued income) 1,318 1,591 Restricted deposits and other non-current receivables Loans to associates 8,318 5,005 d. Liquidity risks Liquidity risk is the risk that the Group will have difficulty meeting obligations in respect of a financial liability. Financial liabilities to banking corporations regarding interest payments are guaranteed through rental payments regularly deposited in designated accounts/collection accounts

113 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) The Group's goal is to maintain a balance between the receipt of financing and the flexibility in the use of bank loans and debentures. As of December 31, 2016, 9.5% of the Group's debt will be redeemed within under a year ( %) (See also Note 11). The following table sets out the maturity dates of the Group's financial liabilities in accordance with the contractual conditions in non-discounted sums (including interest payments): December 31, 2016 Up to one year From one to two years From two to From three to From four to three four five years years years Euros in thousands Over five years Total Accounts payable 21, ,784 Loans from banking corporations (1) 33, ,340 69,678 40, , , ,227 Debentures (1) 23,796 22,983 22,169 21,356 19,190 67, ,695 Liability for finance leasing ,497 6,572 December 31, , ,538 92,062 61, , , ,278 Up to one year From one to two years From two to From three to From four to three four five years years years Euros in thousands Over five years Total Accounts payable 10, ,749 Loans from banking corporations (1) 82,975 44, ,288 69,502 29,532 54, ,332 Debentures (1) 22,741 21,973 21,206 20,439 19,889 67, ,622 Liability for finance leasing ,712 6, ,680 66, ,709 90,156 49, , ,490 (1) The balance of loans from banking corporations and debentures includes interest payments, including the influence of interest swap agreements and interest fixing agreements

114 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) e. Fair value The following table demonstrates the carrying amount and fair value of the groups of financial instruments that are not presented in the financial statements at fair value: As of December 31, 2016 Financial liabilities Carrying amount in the statement of financial Fair position value Euros in thousands Debentures and interest payable on debentures 149, ,297 As of December 31, 2015 Financial liabilities Carrying amount in the statement of financial Fair position value Euros in thousands Debentures and interest payable on debentures 146, ,908 Management estimated that the balance of cash and cash equivalents, short term deposits, trade receivables, trade payables, overdrafts, and other current liabilities and bank loans presented at amortized cost matches or approximates their fair value due to the short maturity dates of these instruments. The following are the methods and assumptions used to determine fair value: - The fair value of marketable debentures is based on quoted prices as of the cutoff date. The fair value of financial instruments that are not quoted on an active market is determined using valuation techniques. Valuation tools specific to financial instruments include: - The fair value of interest swap contracts and interest CAP agreements is based on a calculation of the present value of an estimate of future cash flows, using observable return curves

115 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) - The fair value of credit from banking corporations and debentures is based on a calculation of discounted cash flows using the observed actual Euribor credit rate plus a margin (See also note 11). The following describes unobservable material data that are used in valuation: Valuation technique unobservable data material Range weighted( ) average fair of Sensitivity in change to value data Loans DCF Discount interest Fixed interest 2% increase/decrease in discount rate will result in increase/decrease in fair value up to 2.9 million Interest swap transactions DCF Payment curve As to the data of investment property fair value, see note 8. f. Derivatives and hedging Euribor curve for transaction period 2% increase/decrease in Euribor curve will result in increase/decrease in fair value up to 2 million December 31, 2016 December 31, 2015 Asset Liability Asset Liability Euros in thousands Fair value of swap agreements (1) 1 ) 875( 19 )969( Fair value of currency exchange transactions (2) 2,146-1,272 - (1) Cash flow hedges: As of December 31, 2016, the Group has an interest rate swap agreement (SWAP) in the sum of 56,875 thousand according to which the Group pays a fixed interest rate of 0.5% and receives variable interest at a rate equal to Euribor for one month. As of December 31, 2016, the Group has CAP options on loan principals in the amount of approximately 12,061 thousand to fix a Euribor interest rate. (2) Currency exchange transactions: As of December 31, 2016, the Group has various agreements for a future sale of EURO against future purchases of U.S dollar in the total amount of 40 million and at average forward rate of 1.16 to the dollar

116 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) g. Sensitivity tests relating to changes in market factors Sensitivity test to changes in interest rates December 31, Euros in thousands Effect on profit and loss and other comprehensive income For loans Interest increase of 200 base points 1,227 9,459 Interest decrease of 200 base points *) ) 1,227( )9,459( For Swap and CAP transactions Interest increase of 200 base points 1,951 2,991 Interest decrease of 200 base points *) ) 2,027( )3,257( For debentures CPI increase of 3% ) 3,934( )4,103( CPI decrease of 3% 1,769 2,263 EURO/NIS exchange rate increase of 5% ) 7,396( )7,185( EURO/NIS exchange rate decrease of 5% 7,396 7,185 For currency hedging transactions EURO/Dollar exchange rate increase of 5% 2,000 4,500 EURO/ Dollar exchange rate decrease of 5% ) 2,000( )4,500( Sensitivity tests and principal working assumptions The fluctuations chosen in the relevant risk variables were set in accordance with management assessments regarding possible reasonable changes in these risk variables. The Company has performed sensitivity tests of principal market risk factors that are liable to affect its reported operating results or financial position. The sensitivity tests present the profit or loss and/or the comprehensive income with respect to each financial instrument for the relevant risk variable chosen for that instrument as of each reporting date. The test of risk factors was determined based on the materiality of the exposure of the operating results or financial condition of each risk with reference to the functional currency and assuming that all the other variables are constant. The Group is not exposed to changes in profit/loss due to interest risk with respect to long-term loans at fixed interest. In non-current variable-interest loans measured at amortized cost, the sensitivity test for interest risk was only performed on the variable component of interest

117 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 15:- FINANCIAL INSTRUMENTS (Cont.) NOTE 16:- TAXES ON INCOME In loans presented at fair value, the sensitivity test for the interest risk was carried out on the variable component of the capitalization interest, the market margin, as well as the variable component of the payment interest. a. Tax laws applicable to the Group companies 1. The Company has revenues from real estate investments in Germany. In accordance with the tax treaty between Germany and the Netherlands and between Germany and Luxemburg, real estate revenues are only taxed at the location of the real estate. 2. The following are tax rates applicable to the Company and its key subsidiaries: State The Netherlands 25 Germany (*) Luxemburg *) Earnings from the sale of apartments are subject to a local business tax in Germany. The corporate tax and the local business tax rate amount to %. 3. Earnings from the sale of the shares of a Dutch company, Luxembourgian company and a German company by a Dutch company are tax-exempt in the Netherlands subject to meeting the terms of exemption from participation set forth in Dutch law. Earnings from the sale of a German company by a German company are taxable at a 5% corporate tax rate on the taxable income. b. Tax assessments Earnings from the sale of the shares of a Luxembourgian company by a Luxembourgian company are tax-exempt in Luxemburg subject to meeting the terms of exemption from participation set forth in Luxembourgian law which are minimal holding of 10% or investment of at least 6 million for 12 consecutive months and both companies (seller and sold) are subject to tax in Luxemburg (and pursuant to the prescribed laws). Final tax assessments The Company was issued final tax assessments in Holland until and including Some subsidiaries that are tax assessed in Holland were issued final tax assessments until and including 2013 and some were issued final tax assessment from their establishment date. Most of the companies that are tax assessed in Germany were issued tax assessments until and including 2010 or that these assessments are deemed final due to the statute of limitations. These tax assessments may be changed until the end of %

118 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16:- TAXES ON INCOME (Cont.) c. Losses carried forward for tax purposes and other temporary differences The Group has business losses and capital losses for tax purposes carried forward for tax purposes on the coming years, totaling as of December 31, 2016 approximately 47,601 thousand. In respect of these losses, deferred tax assets have been recognized in the financial statements in the amount of approximately 10,845 thousand. d. Deferred taxes Deferred tax liabilities Statements of financial position December 31, Euros in thousands Inventory of buildings under construction, inventory of real estate and investment property ) 73,433( )56,992( Non-current liabilities ) 235( )489( Revaluation of financial derivatives ) 1,205( )8,044( Debentures ) 245( )437( Other payables ) 218( - Deferred tax assets ) 75,336( )65,962( Losses carried forward for tax purposes 10,845 23,035 Deferred tax liabilities, net ) 64,491( )42,927( Deferred taxes are presented in the statement of financial position as follows: Non-current assets 3,608 8,585 Non-current liabilities ) 68,099( )51,512( ) 64,491( )42,927(

119 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16:- TAXES ON INCOME (Cont.) Deferred tax liabilities Statements of profit or loss Year ended December 31, Euros in thousands Inventory of buildings under construction, inventory of real estate and investment property 16,441 18,603 7,040 Non-current liabilities ) 254( ) 172( )1,327( Revaluation of financial derivatives ) 6,839( 4,930 3,114 Other payables Deferred tax assets 9,566 23,361 8,827 Losses carried forward for tax purposes 14,785 ) 11,018( )2,738( Revaluation of financial derivatives Debentures ) 192( 1,302 )845( 14,593 ) 9,716( )2,989( Deferred tax expenses, net 24,159 13,645 5,838 The deferred taxes are computed at an average tax rate of % (2015 and %) based on the tax rates expected to apply on realization. Deferred taxes in respect of inventory of apartments under construction and inventory of real estate are calculated at a tax rate of %. Deferred taxes in respect of carryforward tax losses in Holland are calculated at a tax rate for these losses to be utilized

120 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 16:- TAXES ON INCOME (Cont.) e. Taxes on income included in the statements of profit or loss Statement of profit or loss Year ended December 31, Euros in thousands Deferred taxes, see also d. above 24,159 13,645 5,838 Current taxes in respect of previous years 2,427 1, Tax expenses 26,586 14,725 6,029 f. Theoretical tax The following is the reconciliation between the tax expense, assuming that all revenues and expenses, gains and losses in the statement of profit or loss had been taxed at the statutory tax rate in Holland and the amount of taxes on income charged in the statement of profit or loss: Year ended December 31, Euros in thousands Income before taxes on income 115,292 92,217 53,484 Statutory tax rate in Holland 25% 25% 25% Tax calculated using statutory tax rate 28,823 23,054 13,371 Balances for which deferred taxes were not recognized 2,910 ) 2,479( - Company's share of losses of associates Deferred tax assets created in other tax rate ) 8,010( ) 5,850( )7,342( Taxes for previous periods and others, net 2, Taxes on income 26,586 14,725 6,

121 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17:- CONTINGENT LIABILITIES, COMMITMENTS AND LIENS a. Commitments, liens and collaterals 1. As collateral for non-recourse loans from banking corporations, liens have been registered on investment properties and also on the bank accounts into which rental fees are received, rights in respect of insurance policies, a lien on the shares of the company holding the asset etc. (see Note 11). Each property is owned by a consolidated SPV company. In respect of some of the properties, a cross-guarantee secures credit facilities taken for acquisition of the properties. Some of the loan agreements contain "negative lien" provisions, whereby the borrowers are prohibited from creating additional liens on the encumbered assets and revenues, without receiving the prior explicit consent of the lender. 2. As part of the loan agreement signed in November 2013 with a German bank for the purpose of obtaining million for financing Stage B of the project in Dusseldorf, the Company extended a guarantee of 12.4 million, out of which an autonomous guarantee of 8.9 million is in favor of the local authority to secure the liabilities of the project companies according to the development agreement with the local authority. The guarantee balance of 3.5 million will be used for issuing guarantees to performing contractors. The annual interest of the guarantee is 1.25% and is calculated only in respect of the amount actually extended as guarantee. The balance of guarantee as of December 31, 2016 amounted to 5.7 million. 3. Regarding the pledge provided in respect of debentures, see Note 11c - e. 4. The balances of secured liabilities are as follows: December 31, Euros in thousands Non-current liabilities (including current maturities), see Note , ,

122 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17:- CONTINGENT LIABILITIES, COMMITMENTS AND LIENS 5. Within the framework of two agreements for the acquisition of three residential properties, the acquiring subsidiary companies gave an undertaking to the sellers (a government housing corporation), inter alia, not to sell more than 25% of the acquired apartments over a period of 10 years (and not more than 2.5% per year), to fulfill capital investments in the acquired properties of a minimum of per sq. meter per annum over a period of 10 years, to meet certain limitations regarding rent increases for residents living in the property on the acquisition date, this being in order to uphold the terms of sale determined by the federal government controlling the seller. These undertakings are secured by a guarantee given by the Ultimate Parent Company, in the amount of approximately 10 million. On November 18, 2010, the Company granted indemnification letter to the ultimate parent company under which the Company shall compensate the ultimate parent company for any demand to exercise the above guarantees, if at all. 6. As part of the development of the inventory of buildings under construction for Stage A (see Note 6), the Company entered into a contract with the contractor. As of December 31, 2016 the construction work was finalized by the contractor. In the final settlement of accounts, the contractor requested additional payment from the Company in the amount of 12.5 million. The Company rejected the arguments of the contractor and demanded that the contractor will compensate the Company for an amount (which is still not final) of 4 million due to various breaches of the contract by the contractor. As per the Company and based on the opinion of its legal counsel the likelihood that the Company will be required to bear any extra payment to the contractor is low. b. Claims Lawsuits have been filed against the Group totaling some 64 thousand. In the estimation of Group management, relying inter alia on the opinions of its legal counsel, the provisions contained in the financial statements are sufficient to cover the possible exposure, if any, as a result of these lawsuits. c. Commitments With respect to some of the Company's assets, the Company entered into agreements with various investors (the investors) for the purpose of investments in joint ventures such that the Company's share in the joint ventures amounts to 55% - 77% and the investors' share amounts to 23%- 45%. To the best knowledge of the Company, these investors are members of the "investors' club" that was established by the ultimate parent company and some of the investors are related parties in the Company. The following are the main terms of the joint venture commitment: 1. The Company shall be, at anytime, the managing partner and the controlling shareholder in the joint venture

123 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 17:- CONTINGENT LIABILITIES, COMMITMENTS AND LIENS 2. The joint venture shall pay the Company management fees of 2.5% of the rental income. 3. The Company shall be entitled to 20% of the investors' share in the profit after the full return of their investment plus an annual yield of 8% on their investment (Promote). 4. For their relative share in the joint ventures, the investors paid the Company and/or the joint venture their relative share of the total purchase cost. During the year, the Company applied to the investors with a tender offer in three joint ventures to acquire the share of investors in the joint ventures. About a third of the investors accepted the Company's proposal and the transactions were completed during the year totaling approximately EUR 15 million. It should be noted that the transaction price is derived from the fair value of the assets held by the joint ventures, in accordance with a valuation of external independent appraisers and the Promote calculation to which the Company entitled. The share of the investors is presented in non controlling interests and their investment balance, as of December 31, 2016, amounts to 82.8 million. NOTE 18:- EQUITY a. Composition of share capital December 31, 2016 December 31, 2015 Issued and Issued and Authorized paid-up Authorized paid-up Ordinary shares of 0.01par value each 22,500,000 6, 612, ,500,000 6,597,569 b. Movement in share capital in the reported period and the previous year 1. With respect to exercise of options by the Company's employees, see e2 below. 2. The movement in issued and outstanding share capital in the report period: Number of shares Euro par value in thousands Balance as of January 1, ,597,569 65,976 Issue of shares (exercise of stock options) 15, Balance as of December 31, ,612,819 66,

124 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18:- EQUITY (Cont.) c. Capital management in the Company The Company acts in order to guarantee a capital structure allowing the Company to support its channels and maximize value to its shareholders. The Company manages the structure of its capital and makes changes in accordance with changes in the environment in which the Company operates. d. Treasury shares - shares of the Company held by the Company The holdings of the Company in the Company's shares are as follows: December 31, Percentage of issued share capital 0. 6% 0.6% e. Employee options 1. On July 8, 2013 and July 17, 2013, the members of the Remuneration Committee and the Board of Directors (respectively) approved the Employee Stock Option Plan to employees who are not Israeli residents that are employed by the Company (2013 Plan) and an Employee Stock Option Plan to employees who are Israeli residents pursuant to section 102 to the Income Tax Ordinance (New Version) 1961 (the Ordinance) in capital gain track (2013/102 Plan, 2013 Plan and 2013/102 Plan will be called collectively the Plans or the New Plans) under which, subject to obtaining all required approvals, a total of 441,524 non marketable options (ESOP3) exercisable into 441,524 of the Company's shares will be allocated to the Company's officers, including joint CEO's and the CEO of a subsidiary who serves also as a director in the Company. On October 29, 2013, the general meeting of the Company's shareholders approved the aforesaid resolutions. On January 27, 2016 and February 4, 2016, the Company's remuneration committee and the Board of Directors (respectively) approved a modification to the plans from 2013 for the allocation of options to employees (ESOP 3) (the existing plans) with respect to the acceleration of the vesting dates as follows: the Company's competent organs may approve a mechanism for accelerating the entitlement of all or any of the offerees with respect to all or any of the warrants that were not yet vested in case the employee is dismissed (other than in circumstances where he is not entitled to severance pay as specified in the Severance Pay Law 1963) and/or upon transferring the control of the Company. The modification of the plans and the approval of accelerating the entitlement dates for exercising non marketable ESOP 3 options issued to joint CEOs and the VP of entrepreneurship and development of the Company received the approval of the Company's general meeting of shareholders which was called for March 21, The fair value of the warrants, which is calculated based on the binomial model, as of the grant date, is approximately on average for each warrant and in the aggregate amounts to about 5,883 thousand. The fair value of the warrants was calculated as a derivative of the Company's value based on an annual standard deviation at the range of 21% - 26% and based on Euro risk free interest rate at a range from 1.19% %

125 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18:- EQUITY (Cont.) 2. In the reported period, the group's employees and officers exercised in various dates a total of 15,250 options into the Company's 15,250 shares. The exercise increment received from the exercise of options amounted to EUR 127 thousand. 3. Expense recognized in the financial statements The expense recognized in the general and administrative expense line item in the financial statements for services received from the Company's employees is presented in the following table: Year ended December 31, Euros in thousands 1, 227 1,525 1, Movement during the year The following table features the number of options for shares, the weighted average of their exercise price and the changes made to the employee option plans during the current period: Number of options Year ended December 31, Weighted Weighted average Number average Number exercise of exercise of price options price options Weighted average exercise price Euro Euro Euro Share options at beginning of year 441, , , Share options granted during the year ,727 - Share options forfeited during the year ) 8,727( - Share options exercised into shares during the year *) ) 15,250( ) 237,278( ) 204,018( Share options at end of year 426, , , Share options exercisable at end of year 131, , *) Average share price in 2016 is

126 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 18:- EQUITY (Cont.) f. Classifications according to Dutch law - statutory capital reserve In accordance with Dutch law provisions applicable to the Company, gains from fair value adjustments, which have not been realized, cannot be distributed as dividends. In addition, earnings of investees cannot be distributed as dividends, unless distributed by the subsidiaries themselves. At the same time, according to Dutch law, these earnings can be distributed only after their conversion into share capital and a reduction in equity as a result of the dividend distribution. In the reported period, the Company classified the distributable earnings out of the statutory capital reserve. Accordingly, the balance of distributable earnings as of December 31, 2016 is EUR 110,691 thousand. g. Capital distribution to shareholders On January 11, 2016, the Company' general meeting of shareholders approved to carry out a capital distribution to its shareholders in the total amount of EUR 6,041 thousand (a total of EUR 6,012 thousand was paid to the Company's shareholders net of the share of treasury shares) out of the premium reserve of the Company's shares. As a result of the capital distribution, the exercise price of the non marketable warrants was adjusted

127 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19:- SUPPLEMENTARY INFORMATION TO ITEMS OF STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME a. Cost of maintenance of rental properties: Year ended December 31, Euros in thousands Salaries, electricity, water and gas 1,941 1,513 1,144 Maintenance and repairs 3,342 2,956 2,868 Land taxes Insurance Doubtful accounts and bad debts 1,714 1, Marketing 933 1, Others b. general and administrative expenses 8,803 8,105 6,331 Property management, salary expenses and others 9,108 7,751 6,787 Legal and other professional services 2,271 2,450 1,944 Travel expenses, rent and office maintenance and others 1, ,594 11,090 9,325 c. Interest income, deposits and others

128 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 19:- SUPPLEMENTARY INFORMATION TO ITEMS OF STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME (Cont.) Year ended December 31, Euros in thousands d. Financial expenses, net (1) Interest, bank charges and others Interest expenses on loans and debentures ) 18,012( ) 18,956( )19,185( Bank charges, guarantee commission and others ) 157( ) 186( )143( Leasing finance expenses ) 206( ) 206( )215( ) 18,375( ) 19,348( )19,543( (2) Amortization of finance costs and others Amortization of financial costs on loans and debentures ) 2,341( ) 1,814( )977( e Effect of exchange rate differences and currency hedging transactions, net ) 20,716( ) 21,162( )20,520( Loss from exchange rate differences in respect of debentures and cash, net ) 7,185( ) 13,168( )1,310( Linkage differences in respect of debentures Income from currency hedging transactions 3,274 15,876 11,445. Change in value of loans and interest rate swap and currency hedging transactions, net ) 3,399( 3,424 10,353 Gain (loss) from revaluation of interest rate swap, net 75 6,949 )2,010( Loss from revaluation of loans according to fair value, net ) 3,868( ) 926( )11,939( ) 3,793( 6,023 )13,949(

129 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 20:- NET EARNINGS PER SHARE a. Details of number of shares used in calculating net earnings per share Weighted number of shares In thousands Year ended December 31, Net income Net income attributable attributable to equity to equity holders of Weighted holders of Weighted the number of the number of Company shares Company shares Euros in thousands In thousands Euros in thousands In thousands Net income attributable to equity holders of the Company Euros in thousands For the purpose of calculating basic net earnings 6,606 76,276 6,552 63,439 6,355 37,954 For the purpose of calculating diluted net earnings 6,798 76,276 6,692 63,439 6,589 37,954 NOTE 21:- OPERATING SEGMENTS a. General Operating segments have been determined based on information reviewed by the Chief Operational Decision Maker (CODM) for the purpose of making decisions with regard to resource allocation and performance assessment (Company Board of Directors). Accordingly, for management purposes, the Group consists of operating segments of business units and has four operating segments, as follows: Income generating commercial real estate Income generating residential real estate Land for betterment and value of construction rights Residential development Leasing property for commercial purposes. Leasing residential real estate. Land undergoing betterment. Inventory of apartments under construction and inventory of real estate The operating segments data are based on the accounting policy of the Company. Segment revenues include rental revenues and revenues from property management. The segment results reported to the operational decision maker include items that relate directly to segment. Items not allocated include mainly general and administrative expenses, financing costs, financing income, adjustment to fair value of financial instruments and taxes on income, which are managed on a Group basis. See also Note 2y

130 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21:- OPERATING SEGMENTS (Cont.) Assets allocated directly to the segment represent the balance of investment property and inventory of real estate and apartments under construction and financial derivatives relating directly to the asset company, whilst liabilities allocated directly to the segment are loans and derivatives relating directly to the asset company and also long-term liabilities that are capable of being attributed specifically. The balance of assets and liabilities is not allocated directly to segments. b. Operating segment report Income- Income- generating generating commercial real residential real Land for Residential estate estate betterment development Total Euros in thousands For the year ended December 31, 2016 Revenues from property rental 35,016 36, ,111 Revenues from property management and others 7,308 18, ,539 Property management expenses ) 7,274( ) 17,687( ) 103( - )25,064( Rental property maintenance expenses ) 3,027( ) 5,546( ) 230( - )8,803( Total rental and management revenues, net 32,023 31, ,783 Revenues from sale of apartments ,935 73,935 Cost of sale of apartments ) 58,537( )58,537( Gain from sale of apartments ,398 15,398 General and administrative expenses Selling and marketing and general and administrative expenses attributed to inventory of buildings under construction )12,594( and inventory of real estate ) 2,644( )2,644( Cost of share based payment Appreciation of investment )1,227( property, net 17,758 58,445 4,256-80,459 Financial expenses, net )27,883( Income before taxes on income 115,

131 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21:- OPERATING SEGMENTS (Cont.) Income- Income- generating generating commercial real residential real Land for Residential estate estate betterment development Total Euros in thousands For the year ended December 31, 2015 Revenues from property rental 34,256 31, ,415 Revenues from property management and others 8,098 18, ,277 Property management expenses ) 7,189( ) 16,856( ) 27( - )24,072( Rental property maintenance expenses ) 3,816( ) 4,051( ) 238( - )8,105( Total rental and management revenues, net 31,349 28, ,515 Revenues from sale of apartments ,372 68,372 Cost of sale of apartments ) 54,637( )54,637( Gain from sale of apartments ,735 13,735 General and administrative expenses Selling and marketing and general and administrative expenses attributed to inventory of buildings under construction )11,090( and inventory of real estate ) 2,041( )2,041( Cost of share based payment Appreciation of investment )1,525( property, net 13,423 9,948 20, ,256 Financial expenses, net )11,633( Income before taxes on income 92,

132 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21:- OPERATING SEGMENTS (Cont.) Income- Income- generating generating commercial real residential real Land for Residential estate estate betterment development Adjustments Total Euros in thousands For the year ended December 31, 2014 Revenues from property rental 33,933 26, ,512 Revenues from property management and others 7, , ,119 Property management expenses ) 6,683( ) 14,663( ) 55( - - )21,401( Rental property maintenance expenses ) 3,282( ) 2,990( ) 59( - - )6,331( Total rental and management revenues, net 31, , ,899 Revenues from sale of apartments , , 933 Cost of sale of apartments ) 58,499( - )58,499( Gain from sale of apartments ,434-12,434 General and administrative expenses Selling and marketing and general and administrative expenses attributed to inventory of buildings under construction and inventory of real estate Cost of share based payment Appreciation of investment )9,325( ) 2,449( )2,449( property, net 9,086 10,540 3,678-23,304 Financial expenses, net )1,554( )23,825( Income before taxes on income 53,

133 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 21:- OPERATING SEGMENTS (Cont.) For the year ended December 31, 2016 Incomegenerating commercial real estate Incomegenerating residential real estate Land for Residential betterment development Euros in thousands Total Capital investments 12,112 93,040 1, ,420 For the year ended December 31, 2015 Capital investments 7,157 37,683 2, ,960 For the year ended December 31, 2014 Capital investments 20, ,110 19, , 022 As of December 31, 2016 Segment assets 483, , ,939 67,736 1,262,691 Unallocated assets 111, 359 Segment liabilities 267, ,053 11,462 26, ,437 Unallocated liabilities 242, 311 As of December 31, 2015 Segment assets 522, , ,038 92,693 1, 174,735 Unallocated assets 106,333 Segment liabilities 308, ,213 13,081 40, ,682 Unallocated liabilities 215,

134 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES a. Balances with interested and related parties As of December 31, 2016 On the matter of terms see Note Controlling shareholder (the Parent Company) Key management personnel Euros in thousands Interested parties and other related parties Loans to associates - - 8,318 Highest loan balance and current receivables during the year See b. below - - 8,318 As of December 31, 2015 On the matter of terms see Note Controlling shareholder (the Parent Company) Key management personnel Euros in thousands Interested parties and other related parties Loans to associates - - 5,005 Highest loan balance and current receivables during the year See b. below - 1,485 5,005 b. Transactions with interested and related parties Year ended December 31, Euros in thousands Financial income Management fees and participation in the expenses of related companies

135 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 22:- BALANCES AND TRANSACTIONS WITH INTERESTED AND RELATED PARTIES (Cont.) c. Benefits for key management personnel (including directors) not employed by the Company: No. of people Year ended December 31, Amount - Amount - Euros in No. Euros in No. thousands of people thousands of people Amount - Euros in thousands Cost of sharebased payment and capital attribution in respect of transactions with controlling shareholder (excluding directors) 7 1, , ,567 Short-term employee benefits (excluding directors) 7 2, , ,862 No. of people Year ended December 31, Amount - Amount - Euros in No. Euros in No. thousands of people thousands of people Amount - Euros in thousands Total benefits for directors Each of the joint CEOs of the Company, hold % of Beta's shares (the Company's subsidiary holding a land for investment and a land designated for residential development). NOTE 23:- DISCLOSURE ACCORDING TO IAS 1 FOR AMOUNTS EXPECTED TO BE SETTLED OR EXTINGUISHED 12 MONTHS AFTER THE DATE OF STATEMENT OF FINANCIAL POSITION As stated in note 2k, the Group has two operating cycles. The operating cycle of apartments under construction is three years. The operating cycle of the remaining activities is one year. Accordingly, current assets and liabilities include items designated and expected to be materialized during the Company's operating cycle

136 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 23:- DISCLOSURE ACCORDING TO IAS 1 FOR AMOUNTS EXPECTED TO BE SETTLED OR EXTINGUISHED 12 MONTHS AFTER THE DATE OF STATEMENT OF FINANCIAL POSITION (Cont.) The following is a disclosure regarding assets and liabilities that are expected to be settled or extinguished, at the most, before12 months after the date of statement of financial position and assets and liabilities that are expected to be settled or extinguished, at the most, after12 months after the date of statement of financial position. December 31, NIS in thousands Assets that are expected to be settled, at the most, before12 months after the date of statement of financial position 115, ,289 Assets that are expected to be settled, at the most, after12 months after the date of statement of financial position 1, 257, 986 1,132,779 Total assets 1, 373, 768 1,281,068 Liabilities that are expected to be extinguished, at the most, before12 months after the date of statement of financial position 83, ,768 Liabilities that are expected to be extinguished, at the most, after12 months after the date of statement of financial position 769, ,200 Total liabilities 853, ,968 NOTE 24:- EVENTS AFTER THE REPORTING PERIOD 1. Capital issuance on January 31, 2017, the Company completed a public offering of 598,540 shares and 299,270 warrants (Series 1) exercisable into 299,270 shares of the Company at a total monetary scope of EUR 49.5 million (gross) by a uniform offer in the tender on the unit price pursuant to a shelf offering report that was published on January 29, 2017 by virtue of the shelf prospectus bearing the date of May 29, Purchase of residential portfolio in Hannover, Germany - on February 8, 2017, the Company (through sub subsidiaries) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder under which the seller will sell the Company 156 residential units in Hannover, Germany for a total consideration of EUR 18 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a sub-subsidiary) negotiates with a German bank to obtain a loan in the amount of EUR 10.4 million under non-recourse terms which its final repayment date is 5 years from the date of receiving the loan bearing a variable interest based on Euribor plus a margin of 1.20% per annum. The transaction is expected to be completed in May

137 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 24:- EVENTS AFTER THE REPORTING PERIOD (Cont.) 3. Purchase of residential portfolio in Essen, Germany - on February 22, 2017, the Company (through a sub subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder under which the Company will purchase from the seller 320 residential units in Essen, Germany for a total consideration of EUR 23.6 million (including related transaction costs). For the purpose of financing the purchase, the Company (through a sub-subsidiary) negotiates with a German bank to obtain a loan in the amount of EUR 16 million under non-recourse terms which its final repayment date is 5 years from the date of receiving the loan bearing a fixed interest rate of 1.08% per annum. The transaction is expected to be completed in June Purchase of residential portfolio in Leipzig, Germany - on March 2, 2017, the Company (through a sub subsidiary) entered into a notarized sale agreement with a third party that is not related to the Company and/or to its controlling shareholder under which the Company will purchase from the seller 43 residential units (4 buildings) in Leipzig, Germany for a total consideration of EUR 5.0 million (including related transaction costs). Such portfolio spans over an area of 3,178 sq.m and the occupancy rate amounts to 95%. The portfolio generates annual rental of EUR 186 thousand. In view of the scope of the transaction, the transaction will be financed by the Company's equity without external financing. The transaction is expected to be completed in April

138 APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS Material subsidiaries and partnerships Appendix of holdings Name of entity Country of December 31, incorporation % in equity Brack German Properties BV The Netherlands Brack European Management KFT Hungary Brack Capital (Remscheid) BV The Netherlands Brack Capital (Neubrandenburg) BV The Netherlands Brack Capital (Chemnitz) BV (1) The Netherlands Brack Capital (Hamburg) BV The Netherlands Brack Capital (D-Rosssatrasse) BV The Netherlands Brack Capital (D-Schanzenstrasse) BV The Netherlands Brack Capital Germany (Gelsenkirchen) BV The Netherlands Brack Capital (Ludiwgsfelde) BV The Netherlands Brack Capital (Bad Kreuznach) BV The Netherlands Brack Capital Germany (Netherlands) XIX BV The Netherlands Brack Capital Beta BV The Netherlands Brack Capital Germany XXVI BV (Netherlands) The Netherlands Brack Capital Germany XXVII BV (Netherlands) The Netherlands Brack Capital Germany XXX BV (Netherlands) The Netherlands Brack Capital Germany XXI BV (Netherlands) The Netherlands Brack Capital Alfa B.V. The Netherlands Brack Capital Delta B.V. The Netherlands Brack Capital Epsilon B.V. The Netherlands Brack Capital Kaufland S.a.r.l. Luxemburg TPL Augsburg S.a.r.l. Luxemburg TPL Bad Aibling S.a.r.l. Luxemburg TPL Borken S.a.r.l. Luxemburg TPL Erlangen S.a.r.l. Luxemburg TPL Geislingen S.a.r.l. Luxemburg TPL Vilshofen S.a.r.l. Luxemburg TPL Biberach S.a.r.l. Luxemburg TPL Ludwigsburg S.a.r.l. Luxemburg TPL Neckarsulm S.a.r.l. Luxemburg BCP Leipzig B.V. The Netherlands BCRE Leipzig Wohnen Nord B.V. The Netherlands BCRE Leipzig Wohnen Ost B.V. The Netherlands BCRE Leipzig Wohnen West B.V. The Netherlands Brack Capital (Wuppertal) GMBH Germany

139 APPENDIX TO CONSOLIDATED FINANCIAL STATEMENTS Appendix of holdings (Cont.) Country of December 31, incorporation % in equity BCRE Kassel I B.V (former BCRE UK B.V) The Netherlands Brack Capital Germany (Netherlands) XXII B.V. The Netherlands BCRE Dortmund Wohnen B.V. The Netherlands BCRE Duisburg Wohnen B.V. The Netherlands BCRE Essen Wohnen B.V. The Netherlands Brack Capital Germany (Netherlands) XXXVI B.V. The Netherlands Admiralty Holdings Ltd Gibraltar BCRE Eta B.V. The Netherlands Brack Capital Labda B.V. The Netherlands Hanse Holdings S.á r.l. Luxemburg Graniak Leipzig Real Estate GmbH & Co. KG Germany Brack Capital Germany (Netherlands) XXIV B.V The Netherlands Brack Capital Germany (Netherlands) XXXV BV The Netherlands Brack Capital Germany (Netherlands) XXXVII BV The Netherlands Brack Capital Germany (Netherlands) XXXVIII BV The Netherlands Brack Capital Germany (Netherlands) XL BV The Netherlands Parkblick Gmbh & Co. KG Germany Capital Germany (Netherlands) XXXIX BV The Netherlands Brack Capital Germany (Netherlands) XLI BV The Netherlands Brack Capital Germany (Netherlands) XLII BV The Netherlands Brack Capital Germany (Netherlands) XLV BV The Netherlands Brack Capital Theta B.V. The Netherlands Brack Capital Germany (Netherlands) XLIII BV The Netherlands Brack Capital Germany (Netherlands) XLIV BV The Netherlands Brack Capital Germany (Netherlands) XLV BV The Netherlands Brack Capital Germany (Netherlands) XXXVI BV The Netherlands Brack Capital Germany (Netherlands) XXXI BV The Netherlands Brack Capital Germany (Netherlands) XLVI BV The Netherlands NFB SÜD GmbH & Co. KG (2) (2) Jointly controlled

140 PRESENTATION OF FINANCIAL DATA FROM THE CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTED TO THE COMPANY ITSELF AS OF DECEMBER 31, 2016 IN THOUSANDS OF EUROS - 1 -

141 SPECIAL REPORT IN ACCORDANCE WITH REGULATION 9C FINANCIAL DATA AND FINANCIAL INFORMATION FROM THE CONSOLIDATED FINANCIAL STATEMENTS ATTRIBUTED TO THE COMPANY ITSELF The following are financial data and separate financial information attributed to the Company from the consolidated financial statements of the group as of December 31, 2016 published under the periodic reports (consolidated statements) which are presented in accordance with Regulation 9c of the Securities Regulations (Periodic and Immediate Reports), 1970, as the case may be. The significant accounting policies applied for presenting these financial data were specified in Note 2 of the consolidated financial statements. Investees are as defined in Note 1b of the consolidated financial statements

142 עמית, חלפון To the Shareholders of Brack Capital Properties NV Re: special report of the auditor on the separate financial information in accordance with Regulation 9c of the Securities Regulations (Periodic and Immediate Reports), We have audited the separate financial information according to regulation 9c of the Securities regulations (Periodic and Immediate Reports), 1970 of Brack Capital Properties NV (hereinafter the Company), as of December 31, 2016 and 2015 and for the three years ended December 31, 2016 included in the periodic report of the Company. The Board of Directors and Management are responsible for the separate financial information. Our responsibility is to express an opinion on the separate financial information based on our audits. We conducted our audits in accordance with generally accepted auditing standards in Israel. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the separate financial information is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the separate financial information. An audit also includes assessing the accounting principles used and significant estimates made by the board of directors and management, as well as evaluating the overall separate financial information presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. Based on our audit, the above separate financial information has been prepared, in all material aspects, in accordance with Regulation 9c of the Securities regulations (Periodic and Immediate Reports), Ramat Gan March 23, 2017 Amit, Halfon, CPAs רח' אבא הילל סילבר 16, רמת-גן office@ahcpa.co.il טל: פקס: Amit, Halfon is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms